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— Bankruptcy —
They may even have a case. From Samaritan Alliance LLC (now UK HealthCare-Good Samaritan Hospital) in Lexington, Ky., to Shreveport Doctors Hospital 2003 Ltd. in Shreveport, La., to Bayonne Medical Center in Bayonne, N.J., care providers say they can't pay staffs or buy food and supplies because state and federal Medicaid dollars don't adequately compensate them. And then there's Connecticut. The situation is particularly bad in the Nutmeg State, even a little crazy. At 50% of cost, Connecticut's Medicaid reimbursement rate is one of the 12 lowest in the U.S. Affinity Healthcare Management Inc., Marathon Healthcare Group and Haven Eldercare LLC, among others, have all sought bankruptcy within the past 12 months.
-- Browse other healthcare-related stories -- This won't hurt a bit The Supreme question State of confusion But Haven's story doesn't end with tight reimbursement rates; there's a lot more to it than that. The state's attorney general, Richard Blumenthal, is now investigating the Middletown, Conn., company and whether former CEO Raymond S. Termini and other unidentified officials diverted Medicaid funds from the nursing home chain for personal use, such as buying a $1.5 million yacht, an $8.9 million record company and homes in Florida and Connecticut. "Haven is beyond the realm," says the vice president of the Connecticut Association of Health Care Facilities, Toni Fatone. "Marathon and Affinity are standard Chapter 11 filings, with the hope and expectation that they can reorganize. Haven is in a league of its own." So much so that Blumenthal's probe has created mayhem in the state, which has undertaken a broader regulatory crackdown on operators of such facilities. "The state of Connecticut is trying to micromanage nursing homes," charges Fatone, who's been with the association for 13 years. "This was never a problem before Haven. They have certainly taken a very forceful approach moving forward with nursing homes as a result of the Haven Healthcare situation." What's particularly confusing is how the state has dealt with Haven itself. Connecticut is investigating the chain now, but it certainly knew plenty about it before Haven's Nov. 20, 2007, bankruptcy filing. "The state was getting calls from vendors for months and months that they weren't getting paid, and the state did nothing," Fatone says. "There were [also] various lawsuits [against Haven] for improper patient care. The problems didn't emerge overnight, and the state of Connecticut had no notice, [but] it had the cost reports and continued to issue the Medicaid rates." Making the Haven situation fuzzier is that Termini contends his investments in a record studio weren't made with Medicaid money at all, as a series of newspaper articles suggested, and that he has done nothing wrong. And while Haven's bizarre bankruptcy case was dismissed on Aug. 8, the chain's 25 nursing homes in Connecticut, Rhode Island, Massachusetts, Vermont and New Hampshire are now being operated by four different entities, including the state of Connecticut itself. There are many credibility problems to go around, between Termini and the state. Termini says he profited from Haven's nonregulated operations. Eighty percent of Haven's revenue, however, is derived from Medicaid reimbursements. Haven had to file cost reports on Sept. 30 of every year to the Connecticut Department of Social Services, which identifies every penny spent and what the Medicaid money went for. Yet the state is now trying to figure out what the money bought and whether Termini used it for his personal use. "There could be criminal charges brought against him eventually," Blumenthal says. "Our focus is to recover any money that was used for personal expenses when it should have been used for maintaining the nursing home facilities or improving patient care." Things seemed to start souring at Haven in 2005, when, according to an investigative series by the Hartford Courant, the company couldn't even afford to buy heating oil for one of its nursing homes. That August, Termini and his wife, Daneen, bought a home in Palm Bay, Fla., for $650,000, according to a report by John F. McCormick of the Connecticut Department of Social Services' Office of Quality Assurance that was released in November 2007. By December, Termini left others to run Haven while he concentrated on starting the record company. The McCormick report recounts "substantial transfers of funds from the nursing home operations to personal investments of Raymond and his wife Daneen Termini," including a $5 million transfer into Daneen Termini's checking account, which was used to purchase rental properties owned by Raymond Enterprises LLC and the yacht. Raymond Termini also bought a $650,000 home on Lake Beseck in Middlefield, Conn. But the report doesn't stop there. It says Termini used $8.9 million to fund the startup of his music recording company, Category 5 Records LLC, as well as $2.12 million to purchase a building in Nashville in December 2006 to house the music label. The building was purchased with a $1.6 million mortgage and $550,000 in cash, the report says. "Millions of dollars transferred to finance non-healthcare enterprises could have totally paid off all of the vendor payables for the Connecticut facilities," the report notes, concluding that "the siphoning of cash from the healthcare facilities is a major reason for the financial troubles." But Termini disputes McCormick's findings, arguing that he had a mortgage for the boat and the Category 5 building and used personal assets. He says the home in Florida was acquired two years earlier than the report says and for about $330,000, with part of it mortgaged. "The allegations are false," he says. "There is an ongoing investigation, but I am confident that I have cooperated fully and at the end of the process I will be vindicated." Haven's complex corporate structure consisted of several nursing home operator companies subject to strict state and federal regulations, as well as to Medicare and Medicaid rules. The other entities were holding companies, real estate ownership companies and supply contractors that weren't, court papers said. Termini contends that he made money from Haven's real estate entities, buying eight properties out of bankruptcy for about $37 million and then flipping them for as much as $64 million -- for a profit he estimates to be as much as $27 million. "There were upwards of $27 million in non-nursing home operating transactions that occurred, of which $16 million was used for investment in Category 5 and $11 million was invested back into the nursing home operations," Termini says. "The owners were entitled to the whole amount, but I invested some back into Haven." But in 2006 and 2007, Haven's problems didn't just have to do with the cash flows highlighted in the McCormick report. The nursing home chain was also embroiled in a dispute with Value Health Care Services Inc., which sued it in Connecticut Superior Court in December 2006, seeking prejudgment relief after Haven accused the pharmaceutical care provider of overcharging it. On April 13, 2007, the parties reached an agreement, in which Haven agreed that it owed Value $14 million and made catch-up payments totaling $6 million. By fall 2007, however, Haven couldn't make a $7 million payment it still had due to Value. Termini, who had kept a strategic hand in Haven even while he went off to run Category 5, had by this time come back to help in the chain's day-to-day management again. He personally guaranteed $5 million of what was owed, but Value had to sue him eight months later to try to get it. It still hasn't gotten the money, with both sides awaiting a judge's decision on Value's request for a prejudgment remedy, according to Value's lawyer, Andrew Troop of Cadwalader, Wickersham & Taft LLP. Termini says he would return to Haven weekly to meet with the management to "check in and see how things were going" during his Category 5 hiatus. But when he recognized that the level of care didn't meet his standards, he decided to get involved again in 2007. "I developed a plan and implemented it, not flawlessly, but effectively," Termini says. The plan was to increase Haven's staff by 183 positions to address regulatory compliance problems, court documents say. But when haven couldn't pay Value, the CDSS' quality assurance unit started its inquiry and the Courant began a three-day exposé "of the Connecticut nursing home industry that deliberately singled out Haven because of its size and prominence in Connecticut and because of the sensational nature of a few isolated incidents at a few of the 15 Connecticut homes," according to court papers. The company filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Connecticut in New Haven a day after meeting with CDSS authorities, its officials fearful "that the state might be contemplating the appointment of a receiver for Haven," according to court documents. They turned out to be right; later on the day before the filing, Connecticut Gov. M. Jodi Rell announced she had instructed a state agency to report on whether all of the company's homes should be placed in receivership. But Termini paints a different picture, blaming the November 2007 stories by the Courant that focused on Haven's serious care problems for the company's demise and, ultimately, its filing. The newspaper wrote that Haven was the most heavily fined by the state and had the highest number of patient-care violations in the three years before the stories ran. According to one story, "residents were found with bedsores that went untreated or that were covered in urine-soaked bandages. The home was not preventing the spread of infections. A blister on one resident's heel went neglected so long that his leg had to be amputated." Fatone says the exposé did seem to ignite the state's interest. "The Hartford Courant series certainly portrayed the state of Connecticut in a very bad light, and then you did see them move forward very quickly," she says. Once the bankruptcy case was filed, Blumenthal sought the appointment of a Chapter 11 trustee, labeling the Haven entities "grossly mismanaged." According to his motion, Haven's failure to pay its vendors $12.9 million was "especially shocking" because the Medicaid cost-reporting system only reimburses companies based on their actual costs, meaning the sole reason the bills weren't paid was because the funds were diverted for other purposes. As a compromise, Chief Judge Albert S. Dabrowski of the New Haven court appointed a chief restructuring officer instead of a Chapter 11 trustee on Dec. 11. If a Chapter 11 trustee had been brought in, "more likely than not, [he] would have taken over full and complete management," says an attorney who asked not to be named. In fact, the unsecured creditors' committee supported the CRO because it minimally disrupted the company and yet provided a necessary watchdog, says the panel's lawyer, Robert Hertzberg of Pepper Hamilton LLP. It looked at first as though Haven would be acquired out of bankruptcy by LifeHouse Retirement Properties Inc., which made a $105 million stalking-horse bid for the company. But LifeHouse backed out on May 19, citing those lower-than-expected Medicaid reimbursement rates. "The LifeHouse bid was contingent upon certain Medicaid reimbursement rates that were not adequate for the buyer, so they terminated the agreement as they were entitled to do," says the unnamed attorney. About a month later, private equity firm Formation Capital LLC stepped in with an $85 million bid for Haven, with plans for affiliate Genesis HealthCare Corp. to manage and operate the facilities. On June 25, that sale, too, collapsed. Formation didn't provide an explanation, but the unnamed attorney says the PE firm determined that "the operational losses were too great and could not be overcome." Even though Haven had been marketed for a year, it's hardly surprising the result was two failed sales. "It's a highly regulated business that is dependent on reimbursement rates," the attorney says. "These were major factors in determining if there were potential buyers and whether or not the buyers thought the homes could be operated at a profit." Fatone says the Medicaid system falls further and further behind, and potential buyers realize they would leave themselves prone to failure. In addition to not raising Medicaid reimbursement rates in the past year, Connecticut is trying to force potential nursing home buyers to place caps on their CEOs' salaries, file quarterly accounts payable reports and face enforcement of the adequate debt ratios. With no other buyers at hand and with nothing left to tap from a $50 million debtor-in-possession loan from CapitalSource Finance LLC, Omega Asset DIP LLC and CapitalSource CF LLC, Haven's secured creditors credit-bid about $93 million for its homes. Through the credit bid, 15 of the homes were turned over to Omega Healthcare Investors Inc., which is having Genesis HealthCare manage the facilities. Four were turned over to CapitalSource Finance, and one was taken over by Nationwide Health Properties Inc. Another four that the secured creditors didn't want were put into state receivership. The remaining facility was leased and given to landlords Continuing Care of South Windsor LLC and Connecticut Health Facilities Inc., court papers said. Dabrowski approved the credit bids on July 4, and Haven's bankruptcy was dismissed on Aug. 8. But with the AG investigation of Haven now under way, the company is still top of mind in Connecticut even if its homes are in the hands of others. Category 5, meanwhile, is still distributing product but not signing or recording any artists. It has sold its building for $2.3 million. Once Haven's troubles were exposed in the media, one of Termini's clients, Travis Tritt, filed a lawsuit against him on Dec. 11, 2007, in the U.S. District Court for the Middle District of Tennessee in Nashville for breach of contract, fraudulent inducement to contract and other charges. On July 22, Judge William J. Haynes Jr. granted Termini's motion to dismiss the case for improper venue. Calls to Tritt's manager, Duke Cooper of Quantum Management, weren't returned, but in court papers, Tritt, who was seeking more than $10 million in damages, said he was not aware that Haven had invested in or had any relationship with Category 5, nor of "the source of the funds Termini used to capitalize and operate Category 5." Termini says the country music singer jumped the gun. "Travis Tritt immediately upon the release of the Hartford Courant articles sought to disassociate himself from Category 5 without reviewing the facts," he says. "Travis Tritt, from our perspective, has been paid in full and never received an additional dime after waging the lawsuit." Termini now works at another company he owns, a job placement company called Compass Staffing Solutions. "At this point, I have had discussions with various nursing home operators, and after 14 years, I have decided to take some time off from the profession and evaluate in the future whether or not I will be involved," he says. "If the media and others had stayed clear and allowed us to do what we had done for 14 years, we would still be operating as a healthy company with strong financial operations." Connecticut certainly doesn't regret Termini leaving the profession. "Haven is history," the state AG's office said in a July 7 statement. "Residents and their families can heave a huge sigh of relief, assured that managers who looted the homes are gone." Maybe. But while the AG's office is trying to figure out if Termini is guilty, it may also want to examine why it took Connecticut authorities so long to act, given the information it was getting. What they may find could give nursing home residents and their families anything but comfort. |
From coast to coast, rising numbers of hospitals and nursing homes in recent years have filed for bankruptcy because, they say, low Medicaid reimbursement rates are squeezing the life from them. 
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