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

Levin and Associates had an interesting article in The Senior Care Investor discussing the bankruptcy and sale of IHS to THI and eventually Fundamental long Term Care Holdings LLc, owned and operated by Murray Forman and Leonard Grunstein.  Below are excerpts from the article:

Very few people remember what happened a little more than seven years ago, but in early
2003, an unknown entity (at least to the senior care world) stepped in at the last minute and snatched the remaining assets of a bankrupt Integrated Health Services (IHS) from the presumed
buyer, literally on the steps of the court house. Trans Healthcare Inc. (THI) thought it had the deal wrapped up for $97.5 million, but an entity called Abe Briarwood, backed by Cammeby’s
International, swooped in for $114 million in cash and was willing to assume the post-petition Medicaid and Medicare billing liabilities, something that made the court very happy.

We are certain that the founder of Cammeby’s, one Rubin Schron, had no idea where this initial acquisition would take him in the rough and tumble skilled nursing industry....  And, most certainly, he never thought he would now be in court pitted against a man he trusted with everything. After Cammeby’s made the winning bid at the 11th hour, THI at first tried to fight it, but then the two sides settled their differences when Cammeby’s hired THI to run the newly acquired IHS assets.  Then, in May 2004, we caught wind of an acquisition offer that was brewing for the former Mariner Health Care from none other than Cammeby’s, but under the name National Senior Care, and separate from its Integrated Health.  The purchase price for Mariner was just under $1.0 billion, and when you capitalized the lease payments, the total transaction value increased to about $1.25 billion. This resulted in a price per bed of $38,800 and a 9.2x multiple of annualized EBITDAR.  The
deal closed at the end of 2004, but perhaps the most longlasting impact on the target entity, which some time later had a name change to Sava SeniorCare, was the role that Mr. Schron’s attorney, Leonard Grunstein, came to play.
There were really two sets of problems that began to emerge. One was what transpired with the original acquisition of the Integrated Health assets and the role of Trans Healthcare, which eventually came to be known as Fundamental Long Term Care when Fundamental purchased the assets of THI, the sale of which some claim was under duress and fraudulent.  There is a separatelawsuit filed on July 1, 2010, against Leonard Grunstein, his brother Harry, Murray
Forman alleging, among other things, fraudulent conveyance, unjust enrichment, legal malpractice, fraud, breach of fiduciary duty, breach of lease agreements, tortious interference and aiding and abetting fraud. The lawsuit was filed by Allen Bodner and DMV Funding LLC and is seeking no less than $150 million in damages and no less than $300 million in punitive damages.
According to the complaint, Bodner owned 100% of DMV which purchased Cammeby’s loan to the Abe Briarwood/IHS deal, and there are 30 more pages as to what transpired among the various parties. The long and short of the complaint was that the plaintiffs believe they got screwed, to
put it bluntly, by people who were partnering with them and advising them.
The more interesting lawsuit, but sort of related, was filed on June 22, 2010, with Rubin Schron and his various holdings as the plaintiffs against a similar cast of characters including Leonard Grunstein, Murray Forman, the law firm Troutman Sanders, and the various Sava and Mariner
affiliates. To fully appreciate how unusual this lawsuit is, one must always keep in mind that Leonard Grunstein was Rubin Schron’s attorney. ....Mr. Grunstein did much of the legal work involved in the Mariner acquisition and subsequent Opco and Propco set-ups that evolved over time.
The relationship between Mr. Schron and Mr. Grunstein dates back to the 1980s, and according to the complaint, he apparently has referred to himself as Mr. Schron’s “general counsel.” According to the complaint, Mr Schron relied on legal advice from his attorney who began to organize things to the benefit of the attorney, and on financial advisory services from Mr. Forman, who was allegedly in cahoots with Mr. Grunstein. Mr. Schron never wanted to have anything to do with operating the nursing facilities; he just wanted a steady, but increasing, rental stream from the
real estate. In the case of the Mariner acquisition, according to the complaint, Mr. Schron put all the money up and ended up owning the real estate in Propco, while Grunstein/Forman retained ownership of the operating entity created to run the facilities, and all the excess cash flow, plus they received a small share of Propco—all without investing any of their own money.  In addition, according to the complaint filed, Mr. Schron was charged $14 million for financial advice in the Mariner deal by MetCap Advisory Services, which was 25% owned by Mr. Grunstein and 25% owned by Mr. Forman.   Other allegations in the nearly 100-page complaint include loans made to Opco that were never paid back to Mr. Schron, distributions taken by the Grunstein/Forman group
totaling more than $70 million, Grunstein billing Schron for non-existent legal work, and for allegedly not giving Schron the final closing documents for the original Mariner acquisition.
One also needs to remember that all of this recent legal action is on top of several issues earlier this year, when Mr. Grunstein and Mr. Forman sued Mr. Schron for more than $100 million for allegedly misappropriating significant sums of money from various partnerships in which they all had a stake.

And don’t forget that all three of them were defendants together when the Department of Justice charged them all with accepting kickbacks from Omnicare in return for pharmacy contracts. Without admitting guilt, they settled and agreed to pay the federal government $7.8 million
and $6.1 million to certain states.

Over the past two years the owners of Sava (Mariner) have been trying to sell off various pieces of the company (or the whole thing), notably the portfolio of mostly leased assets in California, but with little success. The obvious problems were pricing and financing.  Currently, Sava is the seventh largest skilled nursing company in the country with 184 facilities and 21,279 skilled
beds, and it is larger than half of the publicly traded skilled nursing companies.   Still, we believe that selling the assets is a real outcome, especially for Mr. Schron who we assume wants to be done with his relationship with his former attorney and financial advisor, and may even want to be out of the skilled nursing real estate business altogether. The other side, however, may
still not want to give up their cash cow, but the courts and the credit markets may make the decision for them.

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Finally an Attorney General has indicted THI entities for resident abuse and neglect.   It is about time.  Hopefully, this will open the flood gates for other state attorney generals to investigate and indict these entities who have shown a pattern of neglect and careless indifference to their residents. See indictments here and here.   The indictments have a lot of factual information showing the lack of care provided to a vulnerable adult. 

Murray Forman and Leonard Grunstein own and operate Fundamental Long Term Care Holdings which own, operate, and control the hundreds of THI facilities in the U.S. managed by Fundamental Clinical Consulting (the successor company to indicted THI of Baltimore Management).

The pattern of poor care and careless indifference by Fundamental in their THI facilities is well known in the nursing home industry.  Hopefully, these indictments will change their policies and procedures but it is doubtful.

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Nursing home partners in the ownership and operation of hundreds of nursing homes are fighting and suing each other for the fraud they have perpetuated for the last decade.   New York real estate investor and nursing home owner/operator Rubin Schron is suing his partners (in fraud) Troutman Sanders, Leonard Grunstein, and Murray Forman.  See Complaint here.

Schron accuses Troutman, Grunstein, and Murray Forman of breaching their fiduciary duties to benefit themselves at Schron's expense, according to this report by Bloomberg.  The Am Law Daily reported on federal charges against Schron, Grunstein, and Forman over their involvement in a $50 million kickback scheme with nursing homes and pharmaceutical providers. In February all three reached a $14 million civil settlement with federal prosecutors in Boston. 

"This case is about the systemic exploitation by self-interested attorneys and bankers of clients who entrusted them to devise and implement the terms of complex business deals that these defendants arranged and advocated for their clients," states Schron in his 97-page complaint.  Grunstein served as principal outside legal adviser to the real estate investor and his companies from the 1980s until late last year. The suit accuses Grunstein of causing "hundreds of millions in dollars of damages" to Schron.  Also named as defendants are Grunstein's brother and business associate, Harry Grunstein, and Troutman M&A and project finance partner Lawrence Levinson. 

"Grunstein facilitated his tortious conduct by his association with these firms," states Schron's complaint. "Grunstein frequently used their letterhead for his schemes, and he was assisted by the active complicity of several partners, including defendant Levinson. In reward for facilitating Grunstein's misdeeds, these law firms received tens of millions of dollars in legal fees from Schron and the Schron Entities."

The complaint further claims that Grunstein and Forman brought investment opportunities to Schron that they themselves took stakes in without contributing cash or assuming risk. Schron claims that he alone bore the risk from these transactions, with Grunstein and Forman later becoming involved in a series of deals in the nursing home business that drew the attention of federal prosecutors.

The trio have been caught up in a tangle of litigation. Grunstein and Forman filed suit against Schron in March, claiming he misappropriated funds from entities created by the two business partners and failed to keep and maintain audited financial statements.  "Underlying all of the claims in this action is Schron's pattern of betraying the trust placed in him," state Grunstein and Forman in their 38-page complaint,. Grunstein and Forman are seeking $100 million in damages from Schron, several of his relatives, and their affiliated holding companies. 
 

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Another lawsuit involving nursing home owners and operators Murray Forman, Leonard Grunstein, and Rubin Schron.  Forman and Grunstein are accusing Schron of  treating their company as "his personal piggy bank" and looted it for more than $100 million.   Rubin Schron first fattened his piggy bank in 2006, with $40 million that he claimed was repayment of a capital contribution from CAM-Elm Co., his family-owned business that's majority owner of plaintiff SMV Property Holdings.

Schron took $66 million more in 2008 and 2009 to recoup money he lost in personal investments, including rate swaps with Citibank, shareholders say in New York County Court.  Schron's eight children were majority owners of CAM-Elm, giving them the right to remove their father from his position, but since they did not, the plaintiffs say, they are suing them too.

"Schron is not content with the substantial economic returns that he, his family, and his companies have "legitimately" earned. Instead, Schron has resorted to theft, improper accounting manipulation, and more, against those who trusted him and relied on him," the complaint states.

Schron has also accused Leonard Grunstein and Murray Forman of "stealing from the company," so they added a defamation charge to the claims of misappropriation.   Of course, truth is the ultimate defense to defamation.

The plaintiffs seek an accounting and $105 million in damages and want Schron booted from his position and new managers appointed.  See full Complaint here.

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The Washington Post reported OmniCare's profits soared because of recent settlements for kickbacks decreased their anticipated legal defense costs.  Omnicare Inc., which dispenses drugs to nursing homes and long-term care facilities, said its profit almost tripled in the fourth quarter after it resolved allegations it paid kickbacks to nursing homes, and received money for buying and recommending drugs.

In June, Omnicare agreed to pay $98 million to settle the investigation. The terms were completed in November. The Justice Department said Omnicare paid $50 million to Mariner and Sava Senior Care owner/operators Murray Forman, Leonard Grunstein, and Rubin Schron to gain their business, while also asking for and getting kickbacks from two drug companies for recommending their products.

In the fourth quarter, the company said its profit rose to $80 million, or 68 cents per share, from $27.6 million, or 24 cents per share, a year earlier. Omnicare said it earned 74 cents per share from continuing operations, but that includes a tax benefit of 11 cents per share. Its revenue fell 2 percent to $1.54 billion from $1.57 billion

Analysts expected a profit of 63 cents per share and $1.55 billion in revenue, according to a Thomson Reuters survey.

The company reported a total of $5.7 million in pretax litigation costs in its latest quarter, compared to $48.1 million pretax a year ago.

Omnicare said its pharmacy services revenue fell 1 percent to $1.51 billion from $1.53 billion. The decline came from greater use of low-cost generic drugs, smaller reimbursement payments for certain drugs, and a decrease in the amount of beds served. The company said it did more business with assisted living facilities, which typically don't buy as many drugs as acute care centers or other facilities it does business with.

Revenue from Omnicare's clinical research business slipped to $34.3 million from $49.1 million.

In 2009, Omnicare said its profit jumped 51 percent to $211.9 million, or $1.80 per share, from $140.5 million, or $1.19 per share. Revenue decreased less than 1 percent to $6.17 billion from $6.21 billion.

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Below is a great old article about attorney Jay Reinan from Colorado who fought on behalf of John Gordy against the infamous Mariner chain.  Reinan had been a nursing home defense lawyer until he saw the light.   Here is the full article. 

John Gordy's story is tragic and typical of many residents in nursing homes.   He was neglected and abused by those he entrusted with his safety and care.   In 2002 he was admitted to the Red Rocks facility.  Right away, things started going wrong. Though Red Rocks' advertising promised excellence in wound care, Gordy felt like he had to train every new aide who walked into his room. And because of constant turnover, there were many. An ulcer on his foot was ignored to the point of needing surgery. Twice. He almost died after being given the wrong antibiotic. He was forced to lie helpless, despite his protests, as a hot towel scalded the flesh of his chest, leaving him with second-degree burns -- an attempt to warm him when the heat at the facility was broken. But nothing was as bad as the nighttime. Gordy's call light was his only defense in an emergency, but it took aides hours to answer. One night he was left near the side of his bed, with the bed rail down. As he felt himself sliding toward the edge, he yelled out for help, knowing it would only be a matter of time before he fell. He screamed all night, but no one came. At the 6 a.m. shift change, someone finally checked on him; just as the aide entered the room, Gordy crashed off the bed and landed on his face, smashing his teeth.

Jerome "Jay" Reinan is a Denver lawyer who spends his days fighting for abused and neglected clients such as John Gordy, wasn't always on the side of right.  He used to work for what he calls "the dark side," defending corporate nursing homes against such claims. "I was probably one of the primary nursing-home defense lawyers in the state before I switched over," he says matter-of-factly. 

Despite courtroom successes, there were early signs that defense work didn't suit Reinan. He didn't like not being able to choose cases, and he hated that clients were billed on an hourly basis. "You have to keep track of every minute," he says. "If I was on a phone call with a client, I would have to have a piece of paper or a computer program where I kept track of every second I was talking to that person, and it drove me nuts."

It wasn't until 1996 that Reinan took the case that would end his career in nursing-home defense. It started with the families of four residents of Cedars Health Care Center in Lakewood but would grow to include everyone who had lived there between 1993 and 1998, nearly 200 people. During the course of the litigation, the nursing home's owner went through a series of mergers to create Mariner Post-Acute Network. The sheer size of the case was overwhelming, and it absorbed almost all of Reinan's efforts as well as that of one of his partners and two associates. But in the midst of the massive undertaking, Mariner stopped paying its legal bills -- $250,000 worth. (The company would file for bankruptcy in 2000 and emerge as Mariner Health Care Inc. in 2002.) "The mentality you get into on the defense side is, if you have one big client, you're going to kiss that client's butt," Reinan says. "Even if they're not paying the bills on time or they're cutting your bills back, you just have to take it."

But Reinan didn't want to take it anymore. He knew if he was ever going to switch sides and represent people injured by nursing homes, the time was right.  Reinan fired Mariner and demanded payment for what he was owed. His partners protested, but he told them it was his client, his decision. Mariner eventually paid, but the partners split, and Reinan started his own practice in October 1999.

Jay Reinan accepted a case against Red Rocks Healthcare Center for allowing resident Chris Tisserat to starve and dehydrate. But when he filed suit, he got an interesting call from Mariner Health Care Inc., Red Rocks' owner and the company he once represented. "I get a call from their national counsel saying Mariner's almost going bankrupt. They're running out of money and can't pay very much for this claim. 'You'd better take what I'm offering today because it may not be here tomorrow.'"

So he did. Reinan knew if he held out for more and the company filed for bankruptcy protection, his client might end up with nothing. His mistake in taking the bait didn't occur to him until months later.

In summer 2005, John Gordy's case against Red Rocks was referred to Reinan. It was exactly the type of case that Reinan prefers to take. Not only could he show what horrors Gordy had suffered, but records from the Colorado Department of Public Health and Environment showed a pattern of substandard care. Between 2002 and 2005, Red Rocks had been cited with seven deficiencies for failure to prevent or treat pressure sores, five deficiencies for failure to adequately maintain clinical records on residents, and four for failure to prevent falls. Across the state, nearly all of Mariner's thirty nursing homes were cited with serious deficiencies. Eleven were cited for pressure sores at a time when the company was promising superior wound prevention. In fact, the company had such a bad record that the U.S. Department of Health and Human Services had previously sued it for fraud because Mariner facilities hadn't provided the minimum standard of care required by Medicare and Medicaid.

In early 2002, Mariner paid $26 million in fines and entered a Corporate Integrity Agreement with the Office of the Inspector General. A 47-page document specifies every care and accountability standard that Mariner facilities must meet if the company wants to keep its Medicare and Medicaid checks coming.

As Reinan prepared to file Gordy's case, he thought about his last settlement with Mariner. He assumed the company had managed to avoid bankruptcy, as he hadn't heard any more talk of an impending filing. He ran a simple Internet search in late 2005 to check the company's status and found that Mariner hadn't been paying creditors or even its own attorneys: Gulf South Medical Supply was suing Mariner for nearly $5 million it was owed for supplies, and Brunini, Grantham, Grower and Hewes PLLC, a defense firm in Mississippi that represented Mariner, was suing the company for nearly $1 million owed in legal bills. Reinan was glad he had fired Mariner as a client when they owed him only $250,000.

He also found that a group of real-estate investors had formed a company called National Senior Care Inc. in order to purchase the publicly traded Mariner Health Care Inc. The $1 billion deal that went through in December 2004 was a leveraged buyout, as NSC sold off much of Mariner's real-estate assets -- 180 facilities -- to finance the sale. Interestingly, the owners of the companies who bought the assets have ties to NSC, including Leonard Grunstein whose brother is NSC president Harry Grunstein. That sale left the now-privately owned Mariner -- which continued to operate under its own name -- a shell of its former self, worth only $5 million to $12 million, compared to its earlier billion-dollar valuation. Separating the real-estate holdings from the actual health-care operation had an upside for the company's new owners: It reduced their exposure to liability lawsuits, because such cases can only be filed against the company holding the license to provide care, and Mariner's post-sale bottom line looked too emaciated to afford big payouts.

When Reinan took a closer look at the ownership of Red Rocks Healthcare Center, he found a tangled web of companies. But as he traced back the licensure documents, he noticed that the same names kept reappearing: real-estate moguls Harry and Leonard Grunstein and Rubin and Avi Schron. "The land is owned by a company owned by these four guys, and the building is owned by another company owned by these four guys, and the staff is managed by a company that is owned by these four guys. Then there's layers of companies that lease the staff and the building to other companies owned by these four guys, and pretty soon you have something like literally ten or twelve companies that all have their little fingers in running Red Rocks Healthcare Center," he says.

"Why do they do that? It allows them to own all the assets that used to be Mariner, but at the same time avoid liability to the people they hurt, maim and kill at their facilities."

Reinan amended the complaint in the Gordy suit, adding all the specific companies involved and their individual owners. He also included that long list of defendants in a new lawsuit on behalf of Peggy Mussehl, whom he claimed was neglected at another Mariner facility, Fort Collins Health Care Center.  Reinan got a call from Mariner's local attorney, a former colleague, assuring him that adding the additional companies and individuals as defendants would only complicate and drag out the case. It wasn't necessary, he explained, because Mariner had liability insurance.

Reinan agreed to dismiss the extra parties from the complaint, with a warning: "If I hear a whiff of evidence from anyone that Mariner doesn't have money, Mariner doesn't have insurance, I'm going to refile this thing pronto."

A month later, in March, Reinan got a letter in the mail from Martin Stein in New York, the same man who had urged him to settle the Tisserat suit: There are currently approximately 300 open claims against the Mariner entities, alleging injury and/or loss. These include many high exposure cases which are scheduled for trial over the next few months. With respect to almost all of these cases, including the above-captioned matter, there is no insurance available for the first $1 million of loss (including fees and expenses). This means that any judgment in such cases up to $1 million (less fees and expenses incurred) will have to be satisfied from the Mariner assets, if any, available at the time of judgment.

Under the circumstances, I hereby offer $35,000 to settle the [John Gordy] case on behalf of Mariner and its related entities.Š Finally, please be advised that on February 8 and 9, 2005, Mariner won three defense verdicts in professional liability cases, two in Florida and one in Texas.

Two days later, Reinan received the same form letter regarding the Mussehl case. As part of Colorado's tort reform in 1986, nursing homes and other medical facilities were required to obtain insurance as a trade-off for caps being set on awards. Colorado law now requires each nursing home to have at least $3 million in insurance, so Reinan requested the licensure information from the state health department. In the affidavits, signed in 2005, company officials had sworn that each facility had the necessary insurance.

Stein maintains that he has "never said that Mariner does not have insurance" and has "never sent a letter to any attorney on behalf of Mariner saying that Mariner doesn't have any insurance." When asked to clarify the content of the letter, he refused and hung up the phone. Attempts to contact Mariner's in-house counsel and Leonard Grunstein, who is named individually in Reinan's complaints, were unsuccessful. 

Reinan suspects that the new owners are hoping trial lawyers will shy away from claims against Mariner once they find that there's no money and no insurance. Most attorneys would rather take cases against financially sound companies with whom they can settle quickly. In April, Reinan again amended his complaints against Mariner to add the individual owners and associated companies, then filed a new suit in federal court.

Reinan also sent letters to the Colorado Department of Public Health and Environment, the Colorado Department of Regulatory Agencies Division of Insurance and the U.S. Office of the Inspector General detailing what he knew about Mariner's insurance situation and including copies of his letters from Stein and the affidavits submitted to the state health department. "Obviously, one of two things has happened," he wrote. "Either Mariner is employing fraudulent insurance-claims tactics by pretending it has no money in order [to] save on claims payments, or Mariner truly has no money and no insurance, and the affidavits issued by [company officials] are phony and fraudulent. In either case, the State of Colorado must investigate this matter."

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My next three entries will discuss the exploits and complaints against OmniCare, Mariner, SavaSeniorCare, and Murray Foreman, Rubin Schron, and Leonard Grunstein who own and operate hundreds of nursing homes through a complex maze of corporate shenanigans, and were finally caught gaming the system to make millions and deprive our loved ones of the necessary care they deserve.  Our taxes are going into the pocket of these greedy corrupt men.

There have been numerous articles on these cases and I will try to organize, summarize, and paraphrase most of them in the next three days.  It is interesting that none of the article discusses Murray Foreman and Leonard Grunstein's ownership of Fundamental Long Term Care Company that owns and operates hundreds of other nursing homes using the THI name.

The Wall Street Journal wrote geriatric pharmacy company Omnicare Inc. will pay $98 million to settle charges that it engaged in several kickback schemes with drug makers and nursing homes.  The Justice Department alleged that Omnicare regularly paid kickbacks to nursing homes in order to induce the homes to refer their patients to Omnicare for pharmacy services.  Separately, the department said it was intervening in a lawsuit alleging that two nursing-home chains, Mariner Health Care Inc. and SavaSeniorCare Administrative Services, accepted kickbacks from Omnicare in return for pharmacy-service contracts.

Reuters had an article that added additional facts.   DOJ filed a complaint against two large nursing home chains, Mariner Health Care Inc. and SavaSeniorCare Administrative Services LLC, both of Atlanta, and their principals, Leonard Grunstein, Murray Forman, and Rubin Schron, for accepting a kickback from Omnicare in return for pharmacy services contracts.  The company allegedly solicited and received kickbacks in exchange for agreeing to recommend that physicians prescribe Risperdal, a  dangerous antipsychotic drug, to nursing home patients.

The government further alleged that Omnicare regularly paid kickbacks to nursing homes by providing consultant pharmacist services at rates below the company's cost and below the fair market value of such services in order to induce the homes to refer their patients to Omnicare
for pharmacy services.

The United States alleges that Omnicare, Mariner Health Care, SavaSenior Care, Grunstein, Forman, and Schron conspired to arrange for Omnicare to pay the nursing home chains $50 million in exchange for the right to continue providing pharmacy services to the nursing homes, which together constituted one of Omnicare's largest customers. Defendants attempted to disguise the $50 million kickback as a payment to acquire a small Mariner Health Care business unit that had only two employees and was worth far less than $50 million.

After they became aware of the government's investigation, Grunstein, Forman, and Schron allegedly created false backdated documents in a further attempt to hide the kickback. These
allegations are detailed in a separate complaint that was unsealed recently.  Read the Complaint here.

More to come tomorrow.

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