A greedy businessman hides money in his suit pocket

A $105 million federal lawsuit filed last week — one possibly on its way to a quick dismissal — shows the growing threats nursing home operators face in accounting for their right to collect and spend COVID relief funds.

A civil whistleblower suit filed Wednesday in the US District Court for the Southern District of New York alleged the owner of related nursing home, home health and staffing agency companies in at least four states “fraudulently obtained CARES Act disaster relief by means of fraudulent certifications of eligibility.”

GNGH2, which claimed to make its allegations on behalf of the federal government, accused New York-based Citadel Care Centers and its affiliates of improperly accepting forgivable loans from the Paycheck Protection Program. The 2020 program was meant to assist small businesses and was funded through the Coronavirus Aid, Relief, and Economic SecurityAct, or CARES, Act.

In all, 15 related Citadel companies, including four nursing homes in New York and six in Florida, connected to owner Leopold Friedman received individual loans ranging from $164,000 to $9.1 million.

GNGH2, a New Jersey corporation fronted by David Abrams, the attorney who filed the complaint, said the combined loans totaling $35.3 million violated the CARES Act cap of $10 million per business.

“Looking at the concern as a whole, the Defendants and related entities had far more than the maximum assets, payroll size, and revenue for qualification,” Abrams said in his filing. “Thus, the Defendants necessarily made false statements when they executed [a PPP loan application].”

A request for comment from Citadel Care Centers was not acknowledged by production deadline.

While the CARES Act limited receipt of PPP loans to companies with 500 employees or less, small nursing homes and other healthcare providers would have been within their rights to apply, said Donna Fudge, a civil trial lawyer who serves as tort counsel for the Florida Health Care Association.

“Nursing homes and ALFs [assisted living facilities] would have been eligible to receive PPP loans provided they met the government’s eligibility criteria,” said Fudge, of Fudge BRoadwater, P.A. “The long-term care industry was one of the hardest hit by the negative impacts of COVID-19 on their cost of doing business … and their revenues (decrease in new admissions, drop in census levels of residents) declining. 

“In short, in my opinion, long-term care companies were the exact type of company that the PPP loan was designed and intended to help weather the COVID-19 storm.”

Before learning that Abrams planned to withdraw the False Claims case, Fudge said it would take the sector into “uncharted waters.” But providers face plenty of pressure to document and report Provider Relief Funds, and related audit activity by both Health and Human Services and the Department of Justice is ramping up.

But Fudge said she was unaware of any similar whistleblower claims against long-term care providers in relation to relief qualifications or spending.

It was unclear how GNGH2 might have had visibility into the company’s operations or otherwise known that it violated qualification rules. Challenged Friday on the company’s status as a whistleblower, Abrams told McKnight’s Long-Term Care News that he anticipated the “matter will be voluntarily dismissed shortly, i.e. that it will not proceed.”

He declined to comment further.

It’s unclear what kind of business GNGH2 provides, but it was founded by Abrams in early 2020. The government declined to intervene in the Citadel suit but had asked the court to keep it updated on any dismissal or settlement. 

Abrams had brought a similar case against a group of New Jersey nursing homes late last year; he sought and received voluntary dismissal of that case in September.

But in at least one case, a company agreed to a financial settlement after GNGH 2 brought a similar whistleblower suit. The government interceded in that case, and the targeted Milwaukee public relations paid $2.25 million to resolve allegations. It did not admit to wrongdoing.