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New York attorney general alleges fraud involving the owner of a major nursing home

The New York attorney general filed a lawsuit Tuesday alleging long-running financial fraud involving a major US nursing home owner.

The lawsuit involves a single New York nursing home allegedly controlled by Long Island nursing home investor Ephram Lahasky and his associates. The facility’s owners diverted funds intended for resident care to increase their personal gains, New York Attorney General Letitia James alleged in the complaint, in part by making the nursing home pay rent and management fees. inflated to related entities and by using the facilities as collateral to take advantage of multi-million dollar loans. The consequences for the more than 100 residents of the Villages of Orleans Health and Rehabilitation Center in Albion, New York, were devastating, according to the complaint, as the understaffed and poorly maintained facility deprived them of essential medical care and basic items such as food, hygiene and hot water

The case compounds concerns about transparency and quality of care that have surrounded the fast-growing operations of the Lahasky nursing home, which were the subject of a MarketWatch article earlier this year. Lahasky testified that he owns several hundred nursing homes, including three in New York, according to Attorney General James’ complaint, which names Lahasky as a defendant. A major addition to that portfolio came late last year, when Lahasky acquired Diversicare Healthcare Services, which operates more than 60 nursing homes.

Asked if James is investigating other Lahasky-affiliated facilities, a spokeswoman for the attorney general said: “Our nursing home investigations are ongoing.” The attorney general’s office worked closely with the US Department of Health and Human Services on the Villages of Orleans investigation, she said.

The details of the complaint also shed new light on the challenges facing regulators as they try to hold owners accountable for the quality of nursing home care, which is largely funded by taxpayers through Medicaid and Medicare. . One person, Bernard Fuchs of Nassau County, New York, was listed as the sole owner of the facility in regulatory filings, when in fact he was a silent minority partner who testified that he had never visited the Villages of Orleans, according to the complaint. The Centers for Medicare & Medicaid Services, the federal agency that oversees nursing homes, released new nursing home ownership data in September, with the goal of improving data on commonly owned facilities. The CMS database still lists Fuchs as the sole owner of the Villages of Orleans.

“The regulatory and oversight system has not kept up with the increasing sophistication of the nursing home industry,” said Richard Mollot, executive director of the Long Term Care Community Coalition, a nonprofit resident advocacy group. .

Lahasky did not respond to requests for comment. Earlier this year, Lahasky told MarketWatch that “all you hear about is the bad stuff,” adding that “no one hears about average facilities” where residents get all the care they need. Fuchs could not be reached for comment.

Since early 2015, the owners of the Villages of Orleans siphoned off more than $18.6 million, or more than 20% of the facility’s operating budget, pocketing that amount as “seed profit,” the New York attorney general alleged. Some of that money allegedly came from mortgage proceeds. Two years after taking out a $6.3 million mortgage in January 2015 to finance the facility’s original purchase, the owners took out a $15 million loan to refinance that mortgage and immediately took more than $4 million as a cash distribution, the prosecutor alleged. general. In December 2020, the facility was refinanced again, this time through the US Department of Housing and Urban Development, with an additional $3.6 million taken out as proceeds, according to the complaint. Those allegations underscore longstanding concerns about HUD-backed loans that help prop up poorly run nursing homes.

The facility had to pay the inflated mortgage principal and interest from its operating account, the complaint alleges. Under its “predatory” lease with the related party property holding company, the facility had to pay monthly debt service on the mortgage, plus $50,000 per month and earnings of up to $1 million per year, according to the demand. With the triple net lease, the lessee was also responsible for property taxes, building insurance, maintenance, and utilities. Such considerable expenses helped create the false impression that the facility is unprofitable, the complaint alleges.

“Most nursing homes complain that they are losing money,” while profits are often siphoned off through related organizations, said Charlene Harrington, a professor emeritus at the University of California, San Francisco.

Fuchs testified that Lahasky was at the “top of the pyramid,” responsible for handling leases, bank accounts and managing operations at the Villages, according to the complaint. Lahasky testified that he “cannot run…a falafel stand,” the complaint states.

Among the owners of the real estate holding company, according to the lawsuit, is Benjamin Landa, another major New York nursing home investor. Lahasky told MarketWatch earlier this year that Landa helped him get into the nursing home business about a decade ago.

“The lawsuit is without merit,” said Howard Fensterman, Landa’s attorney, adding that Landa owns an 8% stake in the real estate entity and does not own the operations of the nursing home. “A landlord can always refinance a building and take money out of the building if he wants to,” he said. “It has nothing to do with operations.”

Staff and resident care suffered as big profits were extracted, according to the complaint. Residents allegedly suffered from malnutrition and dehydration and developed serious infections due to improper wound care. A resident sent a friend more than 1,000 text messages asking for help getting food, water and other basic items, according to the complaint. The New York attorney general’s Medicaid fraud control unit calculated that if homeowners had paid themselves just $360,000 less in 2020, the Villages could have provided an additional 15,000 hours of direct care to residents during that first year of the pandemic. The facility was so understaffed that COVID quarantine protocols were not followed, and employees who had a fever were told to go outdoors for an hour before having their temperatures taken again, according to the complaint. Early last year, CMS labeled Villages a “special focus facility,” a designation for nursing homes with several years of serious quality problems.

The New York attorney general is seeking restitution for money the defendants “fraudulently transferred” to themselves, the appointment of a receiver and financial supervisor to oversee the financial operations of the facility, and an order removing Lahasky and its partners in any function at Villages and any related entities, among other measures, according to the complaint.

The New York case adds to a long line of legal problems for Lahasky-affiliated facilities. Sam Halper, also named as a defendant in James’ lawsuit, was indicted in August for allegedly falsifying personnel records at a Pennsylvania nursing home co-owned by Lahasky. CHMS Group, another defendant in the James case and an administrative services provider affiliated with Lahasky, is also a defendant, along with several facilities Lahasky co-owns, in a US Department of Labor hours-worked lawsuit. Lawyers for Halper, who has pleaded not guilty to federal criminal charges, did not respond to a request for comment. CHMS has denied the Labor Department’s allegations in court. A lawyer for CHMS Group did not respond to a request for comment.

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