A struggling nursing home that owes nearly $4 million in state fees will likely be able to remain open, thanks to Iowa’s reconsideration of a bankruptcy strategy.

QHC Facilities, which filed for bankruptcy in 2021, owes the state more than $3.9 million, according to local media. State officials had been in talks with QHC to treat that debt as a higher priority than what it owes to other creditors. That means when the chain is sold and the company’s assets are liquidated, Iowa would be one of the first entities paid.

QHC Facilities drew citations for at least 184 regulatory violations in the past 22 months and owes at least $5 million to state and federal taxpayers through unpaid fines, unpaid fees and advance payments for resident care.

The state attorney general’s office recently gave up efforts to be among the first in line to be paid because the planned sale price for the chain dropped from $12 million to $4.5 million. 

Lynn Hicks, spokesman for the Iowa attorney general’s office, said it agreed to have its claim treated as a lower priority to preserve the case.

“We felt it was in the best interest of the health and safety of residents that they not be subjected to a sudden closing,” Hicks said.

Hicks said the attorney general’s office isn’t sure how much of the $3.9 million QHC will ultimately have to pay. 

Hicks said that last week the bankruptcy court decided a planned, $4.5 million sale of QHC Facilities to Blue Diamond Equities meets all requirements for a good-faith sale and is the highest and best price that can be obtained.

QHC’s state obligations stem from quality assurance fees that Iowa nursing homes pay to the state Department of Health and Human Services. Quarterly fees artificially inflate a facility’s cost of doing business, and that increased expense allows the facilities to draw down more in Medicaid reimbursement from the federal government for resident care, offsetting the cost of the fees they’ve paid to the state.

By law, facilities have to use any additional revenue collected using that process to boost  the pay of direct care workers and other staffers.

QHC Facilities’ path to bankruptcy started in 2021 when the owner died. His widow took over and filed for bankruptcy after she found out the company had not been paying the quarterly quality assurance fees. She died soon after and her son found a buyer, Blue Diamond Equities, which agreed on an $11.6 million sale price.

The offer sparked an auction, and Blue Diamond was outbid. That buyer dropped out, Blue Diamond got the sale but had bankruptcy court drop the price to $4.5 million after three of the chain’s most troubled locations closed and excluded from the sale.

Last week, the court approved a settlement agreement involving $2.2 million owed to the federal government for unpaid fines and advance payments for resident care. That agreement forgives up to $1.45 million of that debt and calls for Blue Diamond to pay the federal government at least $692,263 to resolve almost $1.7 million in claims owed by the QHC facilities included in the sale. QHC will pay the federal government at least $82,639 to settle $551,000 in claims tied to the facilities excluded from the sale.