• Targeting Nursing Home Owners: New York State Seeks to Hold Owners Personally Responsible for Deficiencies
  • April 16, 2014
  • Law Firm: Harter Secrest Emery LLP - Rochester Office
  • In a press release earlier this year, the New York Attorney General announced a fraud and False Claims Act suit against the individual owners of a 320-bed, for-profit nursing home. The state’s liability theory relies on the contrast between the financial success of the owners and the serious problems encountered by the nursing home residents. The theory is that the “owners lined their pockets with millions in Medicaid funds while turning a blind eye to the suffering caused by the persistent neglect of the home’s residents.” This case signals that the New York Attorney General will pursue claims against nursing home owners personally and will cite their financial success as evidence.

    THE STATE’S CASE
    The New York Attorney General led its civil case against the individual owners of the Medford Multicare Center in February of this year. On the same day, the Attorney General announced the arrest of nine Medford employees in connection with the death of a resident and a subsequent cover-up, along with two other incidents of neglect that were allegedly covered up. Each of these Medford employees was criminally charged. None of the owners was charged in any criminal act, and there was no allegation that the owners were personally involved in any of the incidents or their cover-ups.

    Rather, the centerpiece of the state’s civil allegations against the owners was that they made excess profits running the home, while the home and its residents encountered repeated problems. The Attorney General pointed to total withdrawals of $60 million dollars over a ten-year period, counting profit-sharing, draws, employee loans, salaries, management fees, and donations to family-run charitable foundations and other charities. The state calculated that these withdrawals equaled 22% of the Medicaid funding received in the same period. The state characterized these withdrawals as the owners’ “systematic corporate looting” of their own business.

    Relying on these withdrawals, the state alleged that the owners “siphoned millions of Medicaid dollars intended to provide necessary care and improve residents’ quality of life.” The complaint specifically pointed to wrongful acts by employees, deficiency citations, and insufficient self-disclosures. In particular, the state enumerated that:

    • 17 nurses and aids pled guilty to neglect and falsifying records over a ten-year period, in addition to the 9 arrests this February;
    • Over the same period, the New York Department of Health cited the home for an annual average of 15 deficiencies, including two immediate jeopardy citations; and
    • The home’s management allegedly reported just 60 of 5,000 incidents and accidents in the period since 2008.

    By coupling the owners’ profits with the shortcomings of management and criminal wrongdoing by home employees, the state argued that the owners should be held responsible for their agents’ actions. In particular, the state asked the court to hold the owners personally responsible for the wrongful acts of the home’s employees in falsifying business records and endangering the welfare of the residents. The state also argued that the owners violated the False Claims Act by allowing their home to accept Medicaid dollars allegedly without providing the requisite services. That claim triggers treble damages. In addition to its damages claims, the state sought an order directing the owners to disgorge “excess proceeds” and precluding the owners from providing Medicaid services.

    CONCLUSION
    This case demonstrates that nursing home owners risk serious personal liability for the wrongful actions of their agents and employees, as well as for regulatory deficiencies at their homes. HSE attorneys can assist owners in evaluating the practices and procedures currently in place in their nursing homes, and in responding to any state investigations, to minimize the potential for personal liability.