One of the major challenges today preventing the effective oversight of nursing facilities is the dramatic change in ownership and management practices since the Nursing Home Reform Law was enacted in 1987. Thirty-five years ago, most facilities were individually owned (“Mom and Pops”) or were not-for-profit, public facilities, owned by corporations, or owned by publicly traded multi-state chains. Today, ownership and management of nursing facilities are frequently shared by multiple individuals and entities – multiple limited liability companies, real estate investment trusts, private equity firms, and other private investors that often deliberately hide their connections to facilities.
The federal government has not promulgated new regulations to address the changing ownership/management structures of nursing homes, leaving facilities and their residents vulnerable to unscrupulous owners and operators. However, the federal government has both the authority and the responsibility to assure that public reimbursement is actually spent on resident care. The Nursing Home Reform Law (1987) explicitly identifies as the broad “duty and responsibility of the Secretary”
to assure that requirements which govern the provision of care in skilled nursing facilities under this subchapter, and the enforcement of such requirements, are adequate to protect the health, safety, welfare, and rights of residents and to promote the effective and efficient use of public moneys. [emphasis added]
More can and should be done at the federal level. However, there is new evidence that, even under existing authority, states may be able to address some of the worst of the owners’ excesses.
In the last few weeks, the New York State Attorney General, through the Medicaid Fraud Control Unit, filed cases against three nursing facilities, alleging that the facilities diverted millions of dollars in Medicare and Medicaid reimbursement to excessive profits for the multiple owners, understaffed the facilities, and provided grossly inadequate care to residents, before and during the COVID-19 pandemic. If successful, these cases would address ownership of the three facilities and could potentially lead to the introduction of better and more comprehensive statutory authority to prevent the abuses alleged in the lawsuits.
The New York lawsuits
On November 30, 2022, New York State Attorney General Letitia James filed a lawsuit against The Villages of Orleans Health and Rehabilitation Center, raising issues of grossly poor care for residents as the mostly hidden owners pocketed, off the top, profits of $18.6 million (22% of the $86.4 million, primarily Medicare and Medicaid, that the facility received to provide care to residents). The Attorney General’s press release alleges that “The owners wove a complicated web of fraud, using their ownership stakes in multiple companies to turn The Villages into a profit machine.” After forming a company to buy the real estate in 2014, the owners used the lease to pay themselves automatic profits “prior to ensuring that The Villages expends sufficient funds on staffing and resident care to meet its obligations.”
On December 13, 2022, the New York State Attorney General sued a second nursing facility for financial fraud and resident neglect, Fulton Commons. As in The Villages Verified Petition, the Attorney General alleges that the facility paid related parties exorbitantly inflated rent. In addition, the State alleges that the facility made loans, with no business purpose and no repayment terms, to other nursing facilities under common ownership and paid salaries to the owners’ adult children for no-show jobs. The facility was seriously understaffed and provided residents with grossly negligent care, before and during the pandemic. In a three-month period, March 1-May 31, 2020, 92 residents died, one-third of the facility’s residents.
A third case, filed December 16, 2022, makes similar allegations against Cold Spring Hills Center for Nursing and Rehabilitation. Suing the facility and its related businesses, owners, and senior managers, the Attorney General alleges that from 2017 through 2021, the 588-bed nursing facility diverted $22.6 million as profits from the more than $157 million it received from Medicaid and more than $88 million it received from Medicare. She alleges, “The operators of Cold Spring Hills used 13 companies to create the appearance that they were paying for services for the nursing home but were in fact diverting Medicaid and Medicare funds for themselves as up-front profit instead of using the funds for resident care.” The facility used three schemes – inflated rent to a related party, a fraudulent promissory note scheme (with 13% interest), and “consulting” services by related parties.
In all three cases, the Attorney General sues not only the nominal owners of the nursing facility, but also the owners of related parties, including the realty companies that own the real property, related companies that provide management, accounting, and other services to the facility, the adult children and spouses of the nominal owners, and other undisclosed owners. She alleges that the various owners diverted public reimbursement to themselves in profits, in violation of state and federal law, leaving less money available for staffing and resident care.
In all three cases, the Attorney General seeks an injunction that, among other provisions, would require the facility to comply with the law; prevent some Respondents from having any role in the facility or any related entity; require a full accounting and return of “all monies wrongfully received” as a result of the owners’ fraud; and appoint a receiver, financial monitor, and independent healthcare monitor, all paid for by the facility.
It is not clear at this time how much of the state authority in New York is common to all states. Similarly unclear is whether Medicaid cost reports in New York are unique in enabling the State to gather so much information about the owners of related companies. But what is clear, and key, is the comprehensive relief that the Attorney General seeks in all three cases. Requiring owners to repay “all monies wrongfully received” and barring them from any involvement in the future in the facility or related entity in the State would send quite a message. Without question, implementation of these demands would go a long way to improving care for residents.
For further information:
- The Villages of Orleans Health and Rehabilitation Center,
- 152-page Verified Petition, https://ag.ny.gov/sites/default/files/orleans_nh_petition.pdf
- The Attorney General’s Press Release, https://ag.ny.gov/press-release/2022/attorney-general-james-sues-orleans-county-nursing-home-years-fraud-and-resident
- Fulton Commons
- 155-page Verified Petition, https://ag.ny.gov/sites/default/files/fulton_commons_petition.pdf
- Memorandum of Law in Support of the Verified Petition, https://ag.ny.gov/sites/default/files/fulton_memorandum_of_law.pdf
- The Attorney General’s Press Release, https://ag.ny.gov/press-release/2022/attorney-general-james-sues-long-island-nursing-home-repeated-financial-fraud-and
- Cold Spring Hills
- 196-page Verified Petition, https://ag.ny.gov/sites/default/files/cold_spring_people_of_the_state_of_v_people_of_the_state_of_petition_1.pdf
- The Attorney General’s Press Release, https://ag.ny.gov/press-release/2022/attorney-general-james-sues-long-island-nursing-home-years-fraud-and-resident Memorandum of Law in Support of the Verified Petition, https://ag.ny.gov/sites/default/files/cold_spring_memorandum_of_law.pdf
December 22, 2022 – T. Edelman
 Joseph E. Casson and Julia McMillen, “Protecting Nursing Home Companies: Limiting Liability Through Corporate Restructuring,” Journal of Health & Life Sciences Law, Fall 2003, Vol. 36, No. 4, http://briuswatch.org/wp-content/uploads/2016/06/Casson-J.-Protecting-Nursing-Home-Companies-2003.pdf
 42 U.S.C. §1395i-3(f)(1). The Medicaid statute is substantively identical. 42 U.S.C. §1396r(f)(1).