Whistleblowers Are Critical to Exposing Fraud in the Murky World of For-Profit and Private-Equity Nursing Home Operations

Posted July 17, 2020

The settlement of a fraud case against 27 skilled nursing facilities controlled by private owners demonstrates “the power of whistleblowers to shine a light on improper business practices and obtain significant recoveries on behalf of United States taxpayers.” (U.S. Attorney Nick Hanna, C.D. California.) The government’s recognition of the contributions of whistleblowers in the False Claims Act case against Longwood Management Corp. is one of several remarkable features: the eye-popping number of skilled nursing facilities that settled (27), the hefty price tag ($16.7M), the five-year Corporate Integrity Agreement, and that it is only a partial settlement of a larger case involving even bigger players in the nursing-home for-profit and private equity world.

In the era of declining accountability for long-term-care facilities, more than ever whistleblowers are needed to speak up for vulnerable nursing home residents and workers. This is particularly true for the 70% + privately owned or for-profit facilities with reduced or non-existent transparency. While a few of the larger chains are publicly traded and must disclose ownership and financials, many are not. Longwood’s ownership, for example, is murky and convoluted. The California Department of Public Health records reflect that ownership of at least one facility, Alden Terrace Convalescent Hospital in Los Angeles, resides in: 7 individuals, two companies owned or controlled by the some or all of the individuals, a living trust bearing the name as some of the individuals, and an investment company that owns one of the other owning companies (but which itself is partially owned by the individuals).

The troubling trend of for-profit and private equity ownership of nursing homes is demonstrably linked to poorer-quality care and increased fines for violations. For-profit consolidation and private equity involvement in healthcare are touted as promoting efficiency, streamlining, and efficiencies of scale. While these benefits may occur to a point, the flipside is they are also a force-multiplier for fraud. In the Longwood case, a business plan to maximize Medicare revenue in its 27 SNFs translated to a systemwide practice of pressuring therapists to give unnecessary services. The desire and need for such enterprises to maximize profits has led to practices such as illegally discharging patients for more lucrative Medicare and Covid-19 patients, self-dealing in related companies and services, kickbacks, and crucially, cutting costs in key areas such as staffing.

Before the Covid-19 pandemic hit, three senators (Warren (D-Mass), Brown (D-Ohio), and Pocan (D-Wis)) wrote to four private equity firms seeking detailed information about their investments and role in nursing home operations. One concern they expressed was that private equity tends to shift funds in an attempt to limit legal remedies. In such cases, company insiders with knowledge not only of the scams but also of the finances and assets might be the only way guilty owners will be held legally accountable. (Employees wishing to expose fraud to government authorities may feel chilled or intimidated by non-disclosure agreements; if so, they should consult with an experienced attorney about the risks and how best to proceed.)

The senators addressed their inquiry letters about private-equity nursing home interests to Carlyle Group, Formation Capital, Fillmore Capital Partners and Warburg Pincus.

Some of the other corporate, for-profit owners of larger nursing home chains are: Genesis Healthcare Corp. (publicly traded); Life Care Centers of America (Forrest Preston); Sava Senior Care (Rubin Schron); The Ensign Group, Inc. (publicly traded); Consulate Health Care; Trilogy Health Services (Griffin-American Healthcare REIT and NorthStar); Pruitthealth; Five Star Senior Living; Brookdale Senior Living; Americare Systems Inc., and Sunrise Senior Living.

Two large nursing home chains are non-profit: HCR Manorcare (now ProMedica) and The Evangelical Lutheran Good Samaritan. While non-profit ownership often is associated with better quality care, they are not immune from fraud allegations, such as those in CC’s successful $57M settlement of a whistleblower case against the largest not-for-profit home health care agency in the country, Visiting Nurse Service of New York.

With operations and decision-making of many for-profit operators of long-term-care facilities not made public, it is fortunate that whistleblowers for U.S. operations have the False Claims Act and strong whistleblower programs (such as the SEC program) to incentivize and protect insiders and other private citizens in coming forward. Other countries are still catching up, but there is reason to hope. When Constantine Cannon issued a challenge for the Financial Times’ Innovative Lawyers Global Legal Hackathon to overcome whistleblower barriers in Canada, The Canadian COVID-19 Accountability Group (CCAG) answered with bold proposals to increase transparency and whistleblower protections. One of CCAG’s specific initiatives is to empower and safeguard insiders at long-term care facilities, for which data during the pandemic is not transparent.

If you have evidence about fraudulent inner workings of nursing home (or other long-term care facility) chains and are considering blowing the whistle, please Contact Us.

With additional reporting by Janice Kelly.

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Whistleblowers Are Critical to Exposing Fraud in the Murky World of For-Profit and Private-Equity Nursing Home Operations

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