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News May 15, 2008 - 10:50 AM

Attorney General calls for new federal role in nursing home industry

By Attorney General's office

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Attorney General Richard Blumenthal, in formal testimony before Congress in Washington, D.C., today, called for major federal and state initiatives to protect patients from fraud and financial collapse at nursing homes controlled by large-scale conglomerates nationwide.

Appearing before the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce, Blumenthal proposed a powerful federal-state partnership -- including a “strike force” to rapidly investigate nursing home corruption.

As a condition of continued federal funding, Blumenthal proposed that states be required to conduct regular financial audits, appoint receivers in cases of gross financial mismanagement, ban corporate bleeding and self-dealing and other measures.

“Connecticut’s frustrating and frightening experience with Haven Health and other nursing home failures is symptomatic of a crisis spreading across the nation -- a clear, clarion call for reform,” Blumenthal said. “We need greatly enhanced federal-state coordination and collaboration -- a real paradigm shift. Our present system of scrutiny is ineffective and inconsistent. Even as nursing home populations rise -- with baby boomers expected to increase them exponentially -- standards and practices are sinking, and becoming as bankrupt as some of the facilities.

“Our regulatory system -- mired in the past when nursing homes were owned by small local companies -- is inadequate to address the problems and challenges posed by mammoth multi-state corporations, LLC’s and private equity firms that dominate the industry.

“Connecticut’s recent rescue of financially failed nursing home chains -- particularly Haven Health -- dramatizes the problems caused by consolidation of small, single owners into large labyrinth chains. Such firms often place profits ahead of patients, emphasizing short-term financial goals instead of long-term health care quality. Haven Health also highlights the need for improvements in federal and state government oversight of nursing homes -- increasingly nationally owned and managed by multi-state corporations or private equity partners.

“Haven Health is in fact a poster child for the perils of concentrated ownership and power. Consolidation of financial control and accumulation of nursing home assets endanger accountability and integrity. The larger the chain, the greater the perils of abuse if expenses and liabilities are shared or shifted among entities. Complex webs of interlocking corporate relationships may delay and deter effective scrutiny. Nursing home financial arrangements include making private loans using nursing home assets as collateral and creating inter-connected limited liability companies to conceal the true owners and real costs. I am attaching to my testimony an organizational chart of Haven Health which clearly depicts a complex constellation of companies, impeding state regulation and oversight.

“The battle against nursing home fraud and mismanagement should be two-pronged. One front should be at the federal level -- a strike force to investigate corruption or self-dealing, and other measures combining state and federal authority to raise standards and practices. Second, at the state level, the federal government should reward or require stronger oversight mechanisms, including official state monitoring and scrutiny of nursing home finances, appointment of state court receivers for nursing homes in situations of gross financial mismanagement, bans on financial bleeding and self-dealing, mandatory levels of insurance coverage, and regulation of management companies and landlords.”

Specifically, Blumenthal said Congress should:

* establish a Patient Protection and Financial Integrity Strike Force to rapidly investigate corruption and self-dealing and rescue their operations by replacing management and even ownership;

* create a national clearinghouse of nursing home information including all state and local citations, for use by state oversight agencies;

* mandate simple, strict, straightforward scrutiny and safeguards – as preconditions for enhanced federal funding – that provide strong financial state oversight;

* and establish a Nursing Home Policy Unit, devoted to developing and requiring better standards and practices.

Blumenthal also said federal law should provide both incentives and requirements that states:

* conduct regular financial forensic audits of nursing home finances;

* appoint a receiver upon a finding of gross financial mismanagement, which will be defined through regulation, but includes having more than 35 percent of accounts overdue by more than 120 days or failing to pay required pension fund and health insurance contributions for more than 60 days;

* ban corporate bleeding of nursing home finances – such as a statutory cap on management fees, rental payments and loan payments by the nursing home to related entities for calculating Medicaid reimbursement rates and prohibition on use of nursing home assets as a guaranty for loans unrelated to the nursing home operation;

* require that nursing home regulation include both the management company that operates the facility, as well as the landlord of the facility;

* adopt mandatory minimum insurance coverage for nursing home owners and management companies for malpractice and liability;

* require state approval of any change of 10 percent beneficial ownership –regardless of form of ownership;

* and require property owners that rent facilities to nursing homes to be responsible for physical plant repairs and maintenance.

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