Editors’ Note: This article has been updated to include comments from Consulate Health Care.
Six affiliated nursing home entities with Consulate Health Care have filed for Chapter 11 bankruptcy in response to a $258 million judgment in a False Claims Act case against the entities.
The declaration was filed Monday in Delaware Bankruptcy Court, Law360 reported. Court documents showed the six entities are part of a family of companies owned by Consulate, which manages and operates 140 skilled nursing facilities across six states.
Consulate itself is not filing for bankruptcy. “The alleged activity/wrongdoing was prior to Consulate ever being associated with these entities,” the company said in a statement to McKnight’s Long-Term Care News.
“Three ongoing businesses and three defunct entities affiliated with the Consulate brand have decided to seek Chapter 11 protections. The remaining 138 care centers affiliated with Consulate are unaffected by this filing,” the statement said.
“This decision by those six entities to seek bankruptcy protection stems, in part, from a recent a decision by the United States Court of Appeals for the Eleventh Circuit in 2020 to reinstate a previously dismissed judgment in a legacy Qui Tam matter brought against them,” the company added.
The judgment in reference refers to a decision by a Florida federal appeals court in June 2020 reinstated $257.7 million of an original $347.9 million verdict in an FCA case.
Whistleblower Angela Ruckh, a one-time employee at La Vie Rehab in Florida, filed suit against the company, accusing it in 2011 of overcharging Medicare and Medicaid by inflating therapy claims.
Consulate explained the lawsuit was filed in 2011 by a short-term agency employee, who had worked a total of 38 days at two nursing centers operated by a former company, and Sea Crest Health Care Management, LLC.
“Sea Crest was the management company for the two nursing centers. The alleged wrongdoing occurred between 2008 through 2011 under a prior owner, and before there was any affiliation with Consulate Health Care, and before CMCII was even in existence. In 2012, a merger of the former owners and Consulate Health Care occurred, and unbeknownst to Consulate, the liability from the prior owners was transferred with these entities,” the company explained.
“Consulate was not involved in any of the actions alleged in the Qui Tam claim, and was not affiliated with the two operating centers or management company during the periods of alleged wrong conduct. Consulate is not, and never was, a named defendant in the lawsuit filed; nor were the remaining 138 care centers who are unaffected in this matter and will continue conducting business as usual,” the company added.
Court documents reveal that the defendants say they don’t have enough in reserve to pay.
The entities “lack the financial capacity to satisfy the Ruckh judgments and cannot risk an interruption in care to the residents of the managed SNFs that might result from enforcement of the Ruckh judgments,” according to court documents.
“Although the debtors remain open to a constructive dialogue to resolve the Ruckh judgments, prior efforts have not resulted in a resolution. Accordingly, the debtors’ efforts are focused on continuing to serve residents of the managed facilities while implementing a process to market and sell their assets for the highest and best price and distribute the proceeds pursuant to the Bankruptcy Code’s priority scheme,” the documents stated.