Attorney General Letitia James’ recent lawsuits against nursing homes have not only exposed dangerous conditions for the residents – but also dangerous blind spots at the Health Department.

In suits filed against three facilities, James’ office charged that the operators repeatedly misstated or withheld information they were required to report – including COVID statistics, lease arrangements and the identities of the true owners.

Health Department officials apparently made little effort to verify what the facilities reported, meaning the record might never have been corrected if not for the attorney general’s intervention.

James’ findings suggest that the department needs to step up its auditing – and crack down on reporting violations – or it’s going to keep missing signs of bad care and misspent money.

In a flurry of three suits between Nov. 29 and Dec. 16, the attorney general leveled patient neglect and financial fraud charges against the Villages of Orleans in western New York and Fulton Commons and Cold Spring Hills on Long Island.

The owners and operators of the homes were accused of defrauding Medicaid, Medicare and other payers by siphoning away excessive profits while providing inadequate care for residents.

As detailed in lengthy court filings, the operators allegedly disguised the poor conditions in their homes – and the size of their profits – by providing incomplete or misleading information to the Health Department.

The department evidently never double-checked the information, even when it had clear reason to doubt what it was being told.

Here are a few of the major examples:

Documenting COVID fatalities. As part of its investigation, the attorney general’s office found that two of the homes significantly underreported how many of their residents died from COVID-19 early in the pandemic.

According to court filings, Fulton Commons had reported only 40 deaths through May 31, 2020, when it knew the actual number was 74. Similarly, Cold Spring Hills allegedly reported only 47 deaths through June 4, 2020, when its true count was 98.

Taken together, these two homes underreported their tolls by 85 deaths or 49 percent – a significant discrepancy that went uncorrected until the attorney general’s Medicaid Fraud Control Unit audited the facilities’ records. As of last week, these 85 deaths did not appear to have been added to the Health Department’s database.

Family members and media reports have been raising doubts about the accuracy of the state’s nursing home COVID data since early in the pandemic. Cold Spring Hills in particular was the focus of an in-depth Newsday expose in August 2020 which raised doubts about its death count, among other issues.

The picture was further clouded by the efforts of Governor Cuomo and his administration to play down the COVID death toll in New York nursing homes as it defended its March 2020 order requiring homes to accept COVID-positive discharges from hospitals.

Instead of trying to develop a more complete and accurate count, the governor and the Health Department arbitrarily omitted residents who were transferred to hospitals shortly before dying – and used that misleading data to claim that New York’s nursing homes were unusually safe.

That policy continued until early 2021, when James issued a report criticizing the practice and the Empire Center won a lawsuit for the complete data under the state’s Freedom of Information Law. Later, Cuomo’s efforts to cover up the full extent of the pandemic in nursing homes would become one of the scandals targeted by an Assembly impeachment probe.

Eighteen months after Cuomo’s resignation, however, the Health Department still has made no public effort to audit or correct its pandemic data.

Given what the attorney general’s office found at just two facilities, it seems likely that the state is still significantly understating the COVID death toll in its nursing homes.

Tracking lease payments. All three nursing homes targeted by the lawsuits have outsourced many of their expenses to separate companies with the same or overlapping ownership – an increasingly common practice known as “related company” transactions.

In particular, the attorney general accused the owners of the three homes of paying excessive rent to themselves through related companies that controlled the real estate. 

The Villages of Orleans, for example, paid rent to a company called Telegraph Realty, which, according to the attorney general’s office, was controlled by the same people as the nursing home.

When the current owners acquired the property in 2014, they told the Health Department’s Public Health and Health Planning Council that the lease payments would be just over $1 million per year. Debt service on the mortgage was said to be $460,000, leaving $600,000 as profit.

According to court papers, however, the operators soon doubled the annual rent payments without notifying state officials. Over the next seven and one-half years, Telegraph distributed almost $10 million in profits to the various owners, even as the nursing home received poor quality ratings due to lack of staff and paid fines for care deficiencies. “These excessive payments were anything but fair, did not follow the market, and provided no value to the Villages,” the attorney general’s office argued.

According to the lawsuits, the operators of the two other homes also paid excessive rent. Fulton Commons paid between $7 million and $10 million per year, of which a third to a half was profit. Cold Spring Hills paid $4 million a year in “cash flow rental payment” on top of the costs of its mortgage, with the extra money distributed to the owners as profits.

While the details of these leases may have been hidden from state officials, the homes were required to itemize the rent they paid – and in some cases the profits taken by their landlords – as part of cost reports filed annually with the Health Department.

For 2020, those reports showed that the Villages of Orleans paid $2.7 million in rent and that the landlord took $1.6 million of that as profit. Although the rent was more than double the amount given in the facility’s 2014 application, there’s no indication the Health Department spotted the discrepancy or queried the owners about it.

That same year, Fulton Commons paid $9.9 million in rent, $4.1 million of which was profit, and Cold Springs Hills paid $10.8 million in rent, including $2.6 million in profit.

James’ office argues that these self-dealing lease arrangements amounted to fraud, because they diverted revenue that otherwise could have been spent on staff, supplies, maintenance or other ways of improving conditions in the facilities. 

Highly profitable leases are not new or unusual in New York’s nursing home industry. An Empire Center report in July 2022 found nursing homes paid $1.1 billion to related companies in 2020, and those companies reported an aggregate profit margin of 19.5 percent. Most of those payments, or $607 million, took the form of rent.

For example, in 2020 the Dry Harbor Nursing Home in Queens reported paying $11.4 million in rent to a second company with the same owner, and that second company declared a profit of $7.7 million or 66 percent.

Ownership confusion. By law, any individual who buys all or part of a New York nursing home must be vetted and approved in advance by the Health Department – and the department can reject would-be buyers who have a record of bad management at other facilities. 

The attorney general’s lawsuits make clear, however, that many owners are passive investors who play little or no direct role in management. The lawsuits also revealed that some homes failed to disclose their true owners, leaving the state misinformed about who should be held accountable.

Investigators found, for example, that the Villages of Orleans was actually controlled by three men who were not approved to be owners – and the sole official owner, Bernard Fuchs, testified that he was surprised and angered to learn that his was the only name listed in state records.

Fuchs said he had intended to be a minority shareholder, but temporarily agreed to be listed as the only buyer as a way of smoothing approval by the Health Department. Later, his partners initially applied to change the ownership but didn’t complete the process, and the Health Department closed the application without further inquiry.

Fuchs said he had never visited the facility, and was unaware he was still the sole owner until he was contacted by regulators about infection-control violations during the pandemic.

At Fulton Commons, the administrator testified that she had never met or talked to the principal owner of her facility, Moshe Kalter, and didn’t recognize the names of co-owners. She said her only contact was with Kalter’s nephew, Steven Weiss, who was the comptroller of several nursing homes owned by his uncle.

In the Cold Spring Hills case, investigators found that the true owners included Bent Philipson and Benjamin Landa, former partners in a major nursing home chain known as Sentosa Care. However, they and another associate allegedly disguised their involvement by putting their childrens’ names on the Health Department paperwork.

Landa’s daughter, Esther Farkovits, who lives overseas, “testified that she ‘assumed’ her father … gave her a 25% ownership interest in Cold Spring Hills as a ‘gift,’ as she did not make an investment in exchange for her ownership interest,” according to court papers. Farkovits “also testified that she was wholly unaware of her ownership interest in Cold Spring Hills until she was served with a subpoena in 2022.”

The attorney general’s lawsuits focus on just three nursing homes, but the problems they document – including the misreporting of information to the state – are likely widespread. Some of the parties named in these cases are big players in the industry with stakes in dozens of other facilities in New York and other states.

With tens of thousands of lives and billions of dollars at stake, it’s apparent from court papers that the Health Department made little effort to verify what it was told, even by cross-checking the nursing homes’ reports with previous records or other publicly available information.

Although the attorney general’s lawsuits are focused on wrongdoing by nursing homes, they also amount to an indictment of a regulatory system that is too easily fooled.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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