(11/23/07)- Haven Healthcare, the Middletown, Connecticut company that is the second largest operator of nursing homes in the state filed a petition for Chapter 11 bankruptcy at the federal courthouse in New Haven this week. The company manages 15 nursing homes in the state and several others in New England. It operates nearly 1,900 beds in the state, which accounts for about 7% of the beds licensed to operate in Connecticut.

Under Chapter 11 proceedings, the present management of the debtor seeks to continue to run the company while it tries to settle its obligations to its creditors.

Connecticut Attorney General Richard Blumenthal has charged that the company lent nearly $9 million to Category 5 Records, the label for the country singing star Travis Tritt at a time when it was not paying its obligations to the suppliers to its nursing homes. Category 5 Records was founded by Ray Termini, the chief executive officer of Haven Healthcare.

Governor Jodi Rell of Connecticut stated that: "The company is concerned about its creditors, but I am concerned about the patients."

Mr. Blumenthal said he would urge the bankruptcy court to appoint an independent trustee to run Haven's business while it is operating under bankruptcy. He also charged the company with failure to properly use the state's Medicaid payments to the homes' suppliers before using those funds for the "benefit of insiders".

Both the House Ways and Means Subcommittee and the Senate Special Committee on Aging held hearings and are proposing legislation to require nursing homes to disclose ownership and to require regulators to release information about poorly managed homes.

Kerry N. Weems, the acting administrator of the Centers of Medicare and Medicaid Services, which regulates nursing homes, offered several initiatives to improve oversight. His suggestions included releasing the so-called special focus facility list, which identifies homes that regulators consider among the nation's worst.

Both House and Senate lawmakers indicated that they expect further hearings and bills. These were the first major hearing on nursing homes since the late 1980's. Those hearings led to the Nursing Home Reform Act of 1987.

Two other congressional committees have announced plans for hearings when the legislature re-convenes later this month. They are the House Energy and Commerce Committed and the House Financial Services Committee.

Lawmakers also discussed requiring nursing homes to have insurance or bonds to pay fines or court verdicts. Some nursing home operators have left the facilities undercapitalized or created legal entities to circumvent being obligated to pay up when there have been large judgments awarded them.

Many multiple home operators have divorced the land holding where the home is located from the operational side of the home, just in case a large jury award is rendered against the home.

(10/26/07)- State legislators in Florida, Pennsylvania, Michigan, Illinois and Washington have asked regulators to investigate the acquisition by the Carlyle Group, a private investment firm of the nation's largest nursing home chain, HCR Manor Care for $6.3 billion. In response to those requests two congressional committees announced that they would investigate business practices at nursing homes owned by private investment groups.

In the House the investigation and hearing will be held by the Energy and Commerce Committee which is chaired by Representative John D. Dingell of Michigan and the Financial Services Committee, which is chaired by Representative Barney Frank of Mass.

Last week, Senators Max Baucus, Dem. of Montana, and chairman of the Finance Committee, and Charles E. Grassley, Rep. of Iowa, and its ranking minority member, sent letters to five private investment firms seeking information on their ownership of nursing home chains. The senators also asked the Centers for Medicare and Medicaid Services, about its oversight of these homes.

"There are serious concerns that private equity firms are reducing the care at nursing homes by decreasing the number of employees," said Mr. Dingell.

The New York Times reported last month that private investment firms had purchased thousands of nursing homes, and subsequently cut expenses and staff, so as to increase the homes profitability. The cut in employees left the nursing homes understaffed and therefore left the residents with substandard care.

Documents filed with the Maryland regulators indicate that Carlyle plans to reorganize Manor Care to make each nursing home a stand alone company, and to separate ownership of the homes' real estate and operations. It is alleged that the main purpose of the breakup is to avoid liability and to insulate the various homes from lawsuit liability..

(5/16/06)- Health Care Property Investors Inc., a real-estate investment trust headquartered at Long Beach, Calif., that owns medical-related properties, agreed to acquire CNL Retirement Properties Inc. for $3.6 billion.

Once the deal is completed the combined companies will own the most retirement, assisted-living and nursing homes, health-care facilities and medical office buildings in the U.S. Health Care will then own nearly 800 properties in 44 states.

Some of the companies' properties are now being managed by a variety of health-care operators, including American Retirement Corp., Horizon Bay and Sunrise Senior Living Inc.

(11/29/05)- Beverly Enterprises (Ft. Smith, Ark.) which operates about 350 skilled-nursing facilities in the U.S. has agreed to be acquired by Fillmore Strategic Investors LLC for a lower price than it had previously agreed to when North American Senior Care offered to buy them out. North American had offered $13 per share for Beverly, but had failed to provide the proper financing for the deal by the time of its deadline of November 23.

Fillmore will pay $12.50 per share, which would value Beverly at about $1.59 billion, based on its shares outstanding as of September 30. Under the new agreement Beverly has until December 12 to solicit other offers. Beverly had put itself up for sale in March after it rejected a takeover bid from an investor group led by Formation Capital, of Alpharetta, Ga. Fillmore Strategic Investors is an affiliate of Fillmore Capital Partners, a San Francisco private-equity firm.

(8/24/05)- North American Senior Care, an entity specifically created to bid for Beverly Enterprises Inc has prevailed in the auction against 10 other bidders with its bid of $1.63 billion. Beverly, which operates345 nursing homes as well as assisted living and hospice centers across the U.S. put itself up for auction after an investor group led by Formation Capital LLC entered a hostile takeover offer of $1.45 billion.

North American's sponsors, who were not identified, have acquired over 400 nursing homes in more than 35 states in recent years, including last year's buyout of Mariner Health Care.

The purchase is expected to close some time next year. If a higher offer is entered before the closing date Beverly would be free to accept the higher bid.

(5/6/05)-The crisis in the nursing home industry caused by the rising cost of malpractice insurance premiums seems to be abating according to the results of a study conducted by Aon Corp., a large Chicago insurance-brokerage company. The study surveyed 76 long-term care providers and was funded by the American Health Care Association, a trade group for the long-term care industry.

The cost for malpractice insurance increased an average of 18% in 2004, down from the average increase of 51% in 2003. Liability costs per bed increased by 1.8% to $2,310 in 2004, from $2,270 in 2003. Liability costs include the cost of malpractice insurance and litigation. Some states such as Florida and Texas have passed new laws that limit the amount of damages in the lawsuits.

The average claim size fell to $176,000 in 2004, from $180,000 in 2003.

(3/30/05)-The Board of Directors of Beverly Enterprises Inc. has voted to put the company up for auction. Beverly, based in Fort Smith, Ark., operates 347 nursing homes, 18 assisted-living centers, and 56 hospices and home health centers.

We are trying to obtain information about the number of homes that have gone bankrupt in the last few years and will report back to you shortly on this matter. We know that the nursing homes claim that Medicaid does not reimburse them adaquetely for the cost of the stay of long term residents of the home. We are also aware of the fact that liability insurance premiums have risen dramatically in the last few years. There are lawsuits now pending in which the assertion is made that because of the underpayment by Medicaid, the other residents of the nursing homes are paying more than what they should be paying if the formula was increased.

(7/10/00)-It has been estimated that 22 % of the nursing homes in the state of Texas, with an estimated 23,000 beds are in bankruptcy. The Texas legislature had increased nursing home reimbursements by 3.7 % earlier this year but the industry claims that this increase is too little, too late. The industry feels that because of a combination of rising labor costs and increasing liability premium rates a minimum increase of 7 % is required. The reimbursement rate for Medicaid patients is $78 per day on average and the industry officials say that this does not even cover their costs. Liability premium rates tripled from 1998 to 1999 in going from $650 per bed to $1,800 per bed.

Nine of the countries top nursing home companies have filed for Chapter 11 bankruptcy protection in the last 2 years. The latest company to file for protection from its creditors under Chapter 11 of the Bankruptcy Code is Genesis Health Ventures Inc., a company based in Kennett Square, Pa. The company has 34,000 employees, and they in turn own 43% of Multicare Companies, which has also filed for bankruptcy protection under Chapter 11. Multicare and Genesis operate 340 nursing homes as partners in 17 states. Multicare owns 197 units of skilled managed care facilities. Genesis is seeking approval from a federal bankruptcy judge in Wilmington, Del. for $250 million in loans to continue operations while it reworks its finances. Many nursing homes advocates have insisted that the federal cuts in Medicare reimbursements to the homes imposed under the Balanced Budget Act of 1997 are causing them to go bankrupt. As proof of this claim they refer to the fact that 3 other large nursing home chains have gone bankrupt in the last 9 months. Mariner Post-Acute Networks, the 2nd largest nursing home chain in the U.S., which runs more than 400 nursing homes nationwide, joined Vencor, based in Louisville, Ky., and Sun Healthcare Group, based in Albuquerque, N.M. in under going bankruptcy proceedings. The American Health Care Association, a lobbying group for the industry, claims that 1700 nursing homes, or about 10%of the industry has been forced into bankruptcy. Is there any truth to their claims? Another question that arises in these situations is what affect does bankruptcy have on the residents of the homes in question?

President Bill Clinton is expected to propose boosting payments to hospitals, nursing homes and other health-care providers by about $21 billion over a 5 year period of time. Under the president's new proposal $9 billion of the $21 billion would go to rescind or delay policies that would further reduce provider payments beginning Oct. 1, 2000. The 15% cut that is supposed to go into effect this year for home-health agencies would be delayed for 1 year. Hospitals would be allowed a full inflation adjustment instead of no inflation adjustment as called for under the present system. Of the $9 billion in delays and rescissions $5 billion would be for hospitals; $2 billion would be for nursing homes, and $2 billion would be for home-health agencies. Changes are also expected in regards to payments to HMOs to encourage them to accept sicker patients than they are now accepting. This $21 billion will be coming out of the $40 billion that has been set aside, as we discuss below for changes in Medicare and the possible prescription drug benefit cost. His Medicare drug proposal would direct $25 billion to HMOs over 5-years and $75 billion to them over 10-years. Under the GOP House passed prescription drug plan $3.5 billion would go to restore some reimbursement cuts to Medicare HMOs over a 5 year period of time.

The budget blue print approved by Congress in April set aside up to $40 billion over 5 years for drug benefits and other changes in Medicare without exactly stating how the money was to be spent. This has become the money at stake in the battle between the industry and those who are advocating prescription drug coverage for Medicare beneficiaries.

We would like to point out that a company named Hampstead Group of Dallas is the landlord, or holds the mortgage on the properties of many of these bankrupt nursing homes. Omega owns or has mortgages on over 270 nursing homes and assisted-living facilities in 29 states. Hampstead has offered to make a $200 million equity infusion into Omega. Under the terms of the agreement between the 2 companies Hampstead would initially pay $100 million for a 44% stake in Omega at $6.25 a share. Omega is recommending to its shareholders that they approve the deal so as to be able to insure that they can make debt payments coming due in the next 7 months. Many vulture investors are now looking at these bankrupt companies, because most nursing homes operate at close to capacity levels.

In another vulture deal, an E.M. Warburg, Pincus & Co. affiliate recently acquired a majority stake in Centennial HealthCare Corp., for $50 million which was about one-third the price offered in late1997. Will the nursing home industry be the major next target of the vulture investors?

A recently released report from the General Accounting Office highlighted the fact that Medicare beneficiaries are having greater and greater difficulty in getting accepted into nursing homes. The nursing home industry alleges that the main reason for the more restrictive policy is a direct result of the changes made for payments to them under the Balanced Budget Act of 1997. The industry claims that the changes in payment that went into effect in mid-1998 did not show up in their balance sheets until 1999. Thus the problem is coming to the forefront at this time.

The new system of payment to nursing homes is called "prospective payments" wherein the home is paid a fixed rate for each patient, depending on the condition of the prospective patient. Under the old system a nursing home was reimbursed based on the actual cost for caring for a Medicare beneficiary resident. Under the old system Medicare would be billed for each and every service afforded the Medicare resident. Congress felt that this system led to "over-servicing" of Medicare residents. The nursing home industry claims that it does not pay for them to admit "high-cost servicing" residents. As a result they are going over the medical records of prospective Medicare beneficiary residents with the proverbial fine tooth- comb. They are even visiting the prospective resident in the hospital to see the applicant in person in the hospital before they are willing to admit that individual to the home.

The GAO report concluded that because of the payment policy changes, nursing homes are being far more selective in accepting new residents. The GAO report went on to further disprove the claim of the industry that the new payment system is causing the increase in the number of bankruptcies amongst nursing homes. The report also went on to state that it is poor operating management by the homes that have filed for bankruptcy, and not the Balanced Budget Act of 1997 that caused the ensuing bankruptcies. The report points to the overstaffing on the administrative side, and poor managerial decisions that ultimately caused the bankruptcies.

Let us further point out to you, that bankruptcy on the part of a nursing home does not give the home the right to evict a resident. The home is not released from contractual obligations in the event of bankruptcy. Medicare and Medicaid beneficiaries who are residents of nursing homes have their rights protected in these situations.

In our own informal surveys we have found that many nursing homes are increasing the number of spots that they allocate for the care of sub-acute residents while cutting back on the number of spots allocated for long term care residents. The reason for this change is quite simple; i.e. there is more money to be made for caring for a sub-acute patient than there is to be made on a long-term care resident. The problem is only worsened by the fact that more and more of us are living longer lives. Thus the pool of supply of prospective residents increases while the number of slots available for them in the nursing home is decreasing. Although we are seeing a substantial increase in the number of facilities being built for assisted living residents, we are actually seeing a decrease in the percentage of facilities being built for long-term care residents.

The only way that we can see this situation being altered is if some type of tax inducement is given to developers to encourage them to build and operate more facilities for long-term residents. Even though this solution has near term negatives it will benefit all of us over the longer haul. In this era of budgetary surpluses we can deal with this problem now rather than waiting for later when we may not have the ability to give tax inducements for social policy reasons.

Please see our other articles on this topic: Nursing Homes and Medicare Fraud. also
Medicare Spending was Down for Fiscal Year 1999

FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home"

Allan Rubin
Updated November 23, 2007

http://www.therubins.com

To e-mail: hrubin12@nyc.rr.com or rubin@brainlink.com

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