Long-simmering discontent with what some lawmakers and many consumer advocates see as cagey nursing home corporate ownership arrangements erupted again Friday, thanks to the publication of a new media investigation into one of the nation’s largest nursing home providers.
Scores of plaintiffs have unsuccessfully or unsatisfactorily sued Florida-based Consulate Health Care and are accusing the company of questionable tactics designed to minimize or avert large verdicts, the health news outlet STAT reported.
The investigation follows the late July introduction of a bill that would bring “long-overdue transparency into nursing home ownership and financial activity,” according to sponsors US Reps. Jan Schakowsky (D-IL) and Mark Takano (D-CA). Federal regulators have also emphasized the issue this year, with Centers for Medicare & Medicaid Services Administrator Chiquita Brooks-LaSure stressing that transparency of nursing home ownership would be a priority.
In STAT’s piece, plaintiffs claim that skilled nursing facility owners often create tangled and intertwined corporate governance structures that have outwitted bankruptcy courts and thwarted plaintiff claims. They are complaints that have been often heard before, including in 2021 congressional hearings.
The new report follows an exhaustive June 2018 look by a Florida newspaper that aimed to lift the veil on the inner workings of Consulate, the state’s largest and often most controversial nursing home provider. At the crux of the story: how the company — and many other large nursing home operators — allegedly use a network of related businesses to shift assets and boost profits for their owners and investors.
Calls and emails from McKnight’s to Consulate corporate headquarters Friday weren’t returned as of production deadline for this article. With 138 skilled nursing facilities in six states, Consulate was the nation’s sixth-largest skilled nursing home operator as of last year. But it has undergone major restructuring in recent months.
The STAT report focused, in part, on a wrongful death lawsuit against Consulate’s Paloma Blanca Health and Rehabilitation after a 59-year-old woman died while under care there. Paloma Blanca has firmly denied allegations of wrongdoing.
After four years of motions and delays, settlement negotiations suddenly halted in March 2021, when a spun-off Consulate unit that owned Paloma Blanca filed for Chapter 11 bankruptcy.
Plaintiffs in the case told the news outlet that Consulate attorneys leveraged the pending bankruptcy as a bludgeon: either accept a significantly reduced settlement, or risk getting little or nothing from a bankrupt entity. The woman’s family “begrudgingly” took the much smaller offer.
In other cases, lawyers for Consulate affiliates leveraged the threat of bankruptcy in seeking to lower settlements; such actions fit a larger pattern that included spinning off struggling entities and carrying very low liability insurance to dissuade litigation, investigators asserted.
The published report last week told, for example, how Consulate facilities’ insurance allegedly typically covers only $100,000 per negligent incident in Florida — an amount that is whittled down to “little or nothing after legal fees.” Consulate’s insurance also often deducts attorneys’ fees from the payout. Each Florida home carries $300,000 in total liability coverage, according to records seen by STAT investigators.
The chairman of the private equity firm supporting Consulate has defended the practice of chopping up nursing home ownership into separate companies as a “crucial legal maneuver that rehabilitated a struggling industry.”
As STAT investigators looked further, they learned how Consulate and its various entities engaged in a bevy of tactics over several years that culminated in the bankruptcy filing of six Consulate affiliates. At least 137 plaintiffs across a half-dozen states had earlier sued the affiliates on allegations ranging from negligence and wrongful death to Medicare fraud.
The ‘bad precedent’ case?
In the original so-called “whistleblower” case, a former employee at two centers owned by La Vie Rehab in Florida, filed suit against the company, accusing it in 2011 of allegedly overcharging Medicare and Medicaid by inflating therapy claims.
The Chapter 11 bankruptcy was in response to an initial $258 million judgment in a False Claims Act case against the entities. That award was later reduced to a $4.5 million judgment by a U.S. Bankruptcy Court in Delaware.
That case and others have some observers close to the industry baffled.
“The Consulate case set a really bad precedent because the facilities are not in bankruptcy but can declare bankruptcy just to avoid legal responsibility. It doesn’t seem fair,” Charlene Harrington, professor emeritus of social and behavioral sciences at the University of California, San Francisco, told McKnight’s Friday.
“If they [Consulate] are allowed to get out of payment through the bankruptcy court, it encourages bad behavior,” Harrington added. “It seems these parent companies need to be held responsible for their subsidiaries.”
Recent overtures toward transparency
In recent years, congressional hearings have been held, decrying the complex and/or cloudy ownership structures of many large providers.
In April, CMS announced it had added data highlighting nursing home ownership changes to its website in an effort to increase transparency. The move, which marks the first time the agency has compiled and shared information on mergers, acquisitions, consolidations and changes in ownership, supports a broader White House initiative aimed at providing insights into private-equity and other ownership types.