Company News

Representative Recent Prosecutions of Nursing Homes and the Individuals that Own and Operate Them, Second Edition

Published: January 2, 2013

As discussed more fully in a related RYTES Company article regarding the current health care regulatory compliance environment as it relates to nursing homes, federal and state governmental agencies have targeted nursing facilities, as well as their owners, operators, executives and administrators, in their individual capacities, with unprecedented aggression.  Most often through qui tam lawsuits – which incentivize current and former employees to report questionable activity by, among other things, awarding whistleblowers with a substantial percentage of monies collected in proceedings – the authorities utilize an array of statutes to bring criminal and civil actions against companies and individuals.  And in light of the extraordinary additional resources the government has invested in compliance enforcement in the last couple of years and the impending implementation of various facets of the recent Patient Protection and Affordable Care Act of 2010 health care reform law, those holding key positions in nursing homes face an exponentially greater risk of legal action – and at far graver consequence – than ever before.

In an article under the same title published earlier this year, RYTES summarized more than 50 recent cases in which nursing homes and/or their owners, operators, administrators or managers have faced sanctions—often criminal and involving the sentencing of the individuals involved to jail terms.  In consideration of the overwhelming response we received from our clients and other health care professionals, who found the comprehensive yet pithy chronicle of contemporary enforcement activity invaluable, and upholding our commitment to staying exceedingly up-to-date, RYTES has produced this second installment of the article.  Focusing primarily on cases involving individual liability, below is a synopsis, once again organized by alleged misconduct, of 10 representative cases—all from the second half of 2012.

This compilation is intended to serve as a useful tool for those in health care to avoid the pitfalls suffered by industry colleagues; to bring to light the issues law enforcement has been focusing on and pursuing; and to stress the urgency with which compliance issues must be addressed.

Billing for Services that were Substandard, Worthless and/or Rendered in Violation of Law

George D. Houser; Rhonda Washington Houser; Forum Healthcare Group

In August 2012, a Sandy Springs, Georgia man was sentenced to 20 years in prison and ordered to pay more than $7.5 million in restitution, in addition to 3 years supervised release, for an alleged healthcare fraud conspiracy involving the misappropriation of government funds intended for the care of approximately 300 residents in the three-facility group he and his wife owned and managed.  Beginning in at least 2004, when George and Rhonda Houser founded Forum Healthcare Group, Inc., and continuing until the state of Georgia closed down the Moran Lake, Mount Berry, and Wildwood Park Nursing and Rehabilitation Centers in 2007, the Housers were found to have conspired to defraud the Medicare and Medicaid programs of approximately $30 million by submitting claims for payments when the care they provided to the nursing home residents was so inadequate that it was worthless and harmful, thereby defrauding the programs of the money paid to the defendants.  According to the April 2010 federal indictment, the homes were inadequately staffed and residents lived in substandard conditions with food shortages, broken air-conditioners, and leaky roofs, while the couple profited roughly $8 million.

Federal authorities further alleged that George Houser, a Harvard Law graduate, deducted federal income taxes from his employees’ paychecks, but he failed to pay more than $800,000 of such funds to the IRS.

The Housers’ motion to have the indictment dismissed was denied in May 2011, and a trial schedule was set for February 2012.  Then, in December 2011, Rhonda Houser entered into a plea agreement with prosecutors pursuant to which she pled guilty to a felony charge of failure to report health care fraud which she knew was being committed—namely, that the home was collecting government money while providing “worthless” services.  Rhonda Houser further agreed to fully cooperate in the ongoing investigation of the alleged criminal activities of her husband.  Finally, she agreed to pay full restitution to all of the victims; exceeding $2.15 million. In exchange, the government agreed to dismiss additional charges against her and recommended a reduced sentence on the remaining fraud charge.

At George Houser’s trial, in response to the damning testimony of two Forum Healthcare administrators, his attorneys insisted that, as owner of the business, he had a right to a profit and any issues brought to his attention were always resolved.  This argument was rejected, though, as Houser was found guilty on 11 counts—one count of health care fraud, eight counts of willful failure to pay payroll taxes, and two counts of failure to file income tax returns.  Even at his sentencing Houser maintained his innocence, insisting that nearly all the testimony against him was false.  Notably, the fraud conviction marks the first time that a defendant has been convicted after trial in federal court for submitting claims for payment for worthless services.[1]

Rhonda Houser was sentenced in October 2012 to eight months home confinement and five years probation, in addition to the aforementioned multi-million dollar restitution she agreed to pay.  In handing down his sentence (which was strikingly milder than the one received be George Houser, despite the couple being equal partners in the nursing homes they ran), the Judge expressed his belief that Mrs. Houser acted under the influence of her husband, who prosecutors called the “mastermind” of the scheme.

Inadequate Care, Staffing and/or Supervision; Abuse, Neglect and/or Homicide

Dickson Tabi; Soma Manor House

The co-owner of a small Maryland elder care center faces criminal charges of reckless endangerment and abuse or neglect of a vulnerable adult resulting in physical injury after a resident of his facility fell through a second-story floor on August 9, 2012, suffering a head injury, several broken bones and a dislocated hip.  The criminal complaint against an owner of Soman Manor House, Dickson Tabi, relates to the failure to lock doors to an area of the facility where the subfloor had been removed, exposing floor joists and drywall for the ceiling below.  After an 84-year-old resident fell through the floor, Tabi allegedly failed to call for medical assistance for nearly eight hours while he purportedly tried to cover up the incident—repairing the hole in the drywall before calling for help.

The very next day, the facility was closed down, its license suspended on an emergency basis and its residents moved to another local facility.

At the preliminary hearing on September 6, defense counsel’s argument that the charges should be dismissed – specifically the abuse allegation, for which no evidence of cruelty or abuse was presented to satisfy the malice requirement – was rejected in favor of the Assistant State Attorney’s position that Tabi’s failure to lock the door to the potentially dangerous area constituted “abuse by way of neglect.”  The District Court judge found probable cause and sent the case to proceed in the Circuit Court.

Each of the charges of abuse of a vulnerable adult resulting in physical injury carry a maximum sentence of 10 years in prison and the reckless endangerment charge carries a maximum sentence of five years.

Pamela Ott; Kern Valley Health District

In what the California Attorney General’s Office is touting as the first time in the country that a facility administrator has been held criminally responsible for the dispensation of psychotropic drugs by lower-ranking staff for their convenience rather than any therapeutic reason, Pamela Ott was sentenced on August 29, 2012 for the use of chemical restraints by employees under her supervision.  Ms. Ott received three years formal probation and 300 hours of volunteer service after pleading no contest to one felony count of conspiracy to commit an act injurious to the public health for her failure to adequately supervise staff members at Kern Valley Health District’s skilled nursing facility, including the Director of Nursing.  The California Registered Nursing Board suspended Ott’s license and civil lawsuits against her are still pending.

For one year ending in August 2007, during Ott’s tenure as administrator, Director of Nursing Gwen Hughes allegedly administered psychotropic medications to 23 elderly residents in order to subdue them and keep them quiet.  Eight residents were seriously injured – three of whom died – as a result.  The charges against Ott – which carried a potential prison term of 20 years or more – stem from her alleged failure to monitor the medicating procedures of the staff and then later failing to investigate the incidents and prevent further occurrences after the practices were allegedly reported to her.

Announcing the sentencing, California AG Kamala Harris explained: “Ott neglected her responsibility to monitor the practices of her employees and, in doing so, she endangered the health and well-being of vulnerable residents…. California has strong laws to prevent elder abuse and we will enforce them so we can protect the most vulnerable among us.”

The Medical Director, Dr. Hoshang Pormir, was sentenced to volunteer service after pleading no contest for his failure to conduct examinations of patients or monitor their reactions to medications.  The DON, Ms. Hughes, took a plea deal in October 2012, pleading no contest to one charge of elder abuse in exchange for the dropping of nine other charges against her.  Her sentencing is scheduled for January 2013.

Sherry Jo Warner; Warner’s Home for the Aged

The owner/operator of an Altoona, Pennsylvania nursing home was arrested in September 2012 on one count of neglect of a care-dependent person based on allegations that direct care aides failed to keep an 80-year-old resident clean and allowed bed sores to grow and multiply in the months prior to his death.  The resident’s five year stay at Warner’s Home for the Aged came to an end in November 2011, when he was admitted to Altoona Regional Hospital where he died 12 days later.  After the hospital staff reported that the resident was in worse shape than any patient they had ever seen – covered in dried feces and soaked in urine, in addition to pressure sores on all of his toes and shins and one foot that was gangrenous – the state Department of Public Welfare revoked the home’s license and a criminal investigation ensued.  In addition to the neglect allegation against the home’s owner, Sherry Jo Warner, the failure to keep a current care plan on file is also cited.

Warner was arraigned in December 2012 and awaits trial.

Donna Darlene Palmer; El Dorado Care Center

In November 2012, an El Dorado, California judge ordered the former Director of Nursing at a local nursing home to stand trial for felony elderly abuse in the death of an Alzheimer’s patient at the facility in 2008.  Johnnie Esco, a 77-year-old resident at El Dorado Care Center, was supposed to be constantly monitored by nurses at the nursing home, but died of fecal impaction 13 days after her admission at the facility.  Prosecutors allege that neglect led to Esco’s death and that Donna Darlene Palmer, the DON, is ultimately responsible for her failure to properly supervise the staff.  The suspicious nature of Esco’s medical records at the nursing home – including missing information, overwritten entries and curious, unexplained notations – was cited as an indication that the resident had received substandard care.  Ms. Palmer’s next court appearance is scheduled for January 2013, when a trial schedule may be set.

Another nurse, Rebecca Smith, was also charged in connection with this incident but pled no contest to felony elder abuse and agreed to help prosecutors in their case against Palmer in exchange for a possible suspended jail sentence.

The nursing home, owned at the time by Horizon West Healthcare Inc. of Rocklin, has since been sold and renamed.[2]

This prosecution is part of the California AG’s recently-announced plans to step up efforts with three new specialized teams aimed at building criminal cases statewide against nursing home executives and personnel.

Wrongful Taking/Financial Exploitation

Stanley Rodowicz; Village Manor Health Care

On July 31, 2012, the former owner/administrator of a New Haven, Connecticut nursing home operator was sentenced to 18 months in federal prison after pleading guilty to one count of bankruptcy fraud.  Stanly Rodowicz admitted to embezzling more than $800,000 from Village Manor Health Care, which operated a 90-bed Plainfield facility through Chapter 11 bankruptcy from early 2007 through early 2010.  Rodowicz, who resides in Florida, filed numerous motions for authority to use cash collateral to pay Village Manor’s “landlord,” which was a partnership in which he was part owner.  In addition, many of these payments exceeded the amount authorized by the Bankruptcy Court.  The U.S. Attorney for Connecticut alleged that this “scheme” – which also included the falsification of the home’s books and records to conceal the illicit activity – constituted embezzlement, netting Rodowicz more than $815,000.  Once the fraud was discovered in 2010, operation of the home was immediately assigned to a bankruptcy trustee.

Rodowicz was also sentenced to two years supervised release following his prison term and was ordered to pay almost $500,000 in restitution—this in addition to the $322,000 he already paid in an effort to conceal the fraud.

Marc Korn; Senior Associates LLC; Fairchild Manor Nursing Home; Batavia Nursing Home

In July 2012, a federal grand jury added multiple charges of bank fraud and failure to pay overtaxes to the five-count indictment it had returned in December 2011 against the owner of the operating company of two nursing homes in Western New York on charges of wire fraud and making false statements to law enforcement, relating to an embezzlement and fraud scheme.  Marc Korn – who had once served as a gubernatorial appointee on a council that helped to determine New York State policies on nursing homes – now faces up to 20 years in prison and a $250,000 fine on accusations of stealing at least $317,000 from a charity, from patient trust accounts at his nursing homes and from employee payroll accounts.  The superseding indictment also alleges that Korn evaded federal taxes, defrauded one of his lenders and lied to bank officials about the value of one of his properties.

In his capacity as Chairman of a charity overseas, Korn is accused of writing checks totaling over $150,000 to himself for personal use.  The indictment further alleges that Korn caused over $167,000 from nursing home equipment leasing agreements to be deposited into a bank account in the name of one of his business entities, Health Care Alliance, Inc.  Korn is also accused of skimming from patient trust funds and his alleged theft from payroll accounts prevented several employees of his Fairchild Manor Nursing Home and Batavia Nursing Home from cashing their paychecks.  These illicit funds were purportedly used to support what federal authorities call an “extravagant lifestyle”—including a $710,000 Amherst home.  Korn insists that he is innocent and that the checks he wrote to himself were reimbursement for expenses incurred on behalf of his organizations.

In addition, Korn is accused of making false statements to investigating agents during a June 2010 interview, when he allegedly told agents the deposits into Health Care Alliance were commissions.

Shortly after the original criminal complaint was filed in July 2011, the New York Department of Health approved a plan for Fairchild Manor to close and cease operations and relocate residents to other nursing home facilities.  The proceedings against Mr. Korn remains in the pre-trial stage.

Antonio Giordano; John Montecalvo; Mount St. Francis Health Center; Coventry Health Center; Hillside Health Center; Coventry Health Center Associates

In December 2012, the owner and the chief financial officer of 3 Rhode Island nursing homes were ordered to pay a total of more than $20 million to the U.S. Department of Housing and Urban Development (HUD) for diverting money from their failing nursing homes.  Antonio Giordano, the owner, and John Montecalvo, the CFO, had already served federal prison terms beginning in 2006 – 2½ years and 2 years, respectively – after admitting to diverting millions of dollars from Mount St. Francis Health Center, Coventry Health Center and Hillside Health Center, in violation of their HUD regulatory agreement, which bars the taking of funds when the facility is “insolvent.”  The pair pleaded guilty to misuse of the homes’ funds, embezzlement and conspiracy.  Allegedly as a result of the “skimming practices,” Mount St. Francis and Coventry were operating in the red, defaulted on their HUD-backed mortgages and ultimately went into receivership.  Hillside simply closed down.

Regarding the state charges of embezzlement and conspiracy to which they admitted as well, the two agreed to pay $1.1 million in fines and restitution but avoided additional jail time.

Then, in December 2009, the federal government, on behalf of HUD, brought suit against Giordano and Montecalvo – as well as Coventry Health Center Associates, a limited partnership set up by Giordano – seeking $12.1 million in restitution for the defendants’ enriching themselves at the homes’ expense.  This suit was put on hold when, in October 2011, Giordano filed for Chapter 7 Bankruptcy protection, claiming that he was unable to pay nearly $800,000 he owed to the IRS.  The Bankruptcy Trustee pursued an investigation of Giordano’s assets and funds, including a trust Giordano created for his children that gave him $10.2 million from 2004 to 2007.  Giordano claims that he owes the trust over $10 million for payments to cover his legal bills and living expenses.  In February 2012, U.S. Bankruptcy Judge Arthur Votolato froze the trust’s assets.

In April 2012, IRS attorneys moved ahead with thier $8 million claim, rejecting Giordano’s argument that the federal government already exhausted its claim for the unpaid unemployment taxes during Mount St. Francis’ receivership proceedings.  This torpedoed the bankruptcy settlement Giordano seemed to be nearing with his creditors.

In October 2012, a U.S. District judge ruled in favor of HUD and ordered Giordano and Montecalvo to pay double the $6.05 million they admitted to diverting, reasoning: “A double damage award is required … in order to further Congress’ intent of deterring future violations by other individuals who may be tempted to corruptly raid publicly funded projects.”

In December 2012, the judge ordered Giordano to pay almost $14 million and Montecalvo more than $7 million.

Kickbacks

John Henderson; Medical Facilities of America, Inc.

In July 2012, a former executive at a nursing home operator of facilities throughout Virginia and North Carolina was sentenced to five years and three months in prison and ordered to pay nearly $700,000 in restitution, additional federal taxes, penalties and interest after pleading guilty to accepting kickbacks and evading taxes four months earlier.  John Henderson, who served as a director at Medical Facilities of America, Inc. (MFA) admitted to two separate bid-rigging schemes – one dating back to 1998 – whereby he steered more than $5 million of contracts for repair, maintenance and renovations for some of the more than 40 facilities operated by MFA in exchange for hundreds of thousands of dollars.  Henderson pocketed an estimated $650,000 in kickback payments and the scheme cost the company more than $500,000.  He also admitted to filing false tax returns that failed to include more than $400,000 of his ill-gotten income.

As part of the ruse, Henderson was found to have conspired with contractors to defraud MFA by circumventing MFA’s competitive procurement process, creating fictitious competitive bids that were higher than the ones submitted by his alleged accomplices.  He then instructed subordinates to solicit quotes only from the contractors involved.

Facing two counts of conspiracy to commit mail and honest services fraud and two counts of tax evasion – carrying a combined potential punishment of up to 50 years in prison and $1 million in fines – Henderson decided to cooperate with the DOJ’s investigation in hopes of a reduced punishment.

Henderson is the fifth individual to plead guilty in connection with this conspiracy.  One of the contractors, Edward Fodrey, was sentenced to 37 months in prison earlier in the year and was ordered to pay $326,799 in restitution.

Health Systems, Inc.; Rehab Systems of Missouri; RehabCare Group, Inc.

In a lawsuit for which a jury trial is set for September 2013, federal charges were brought against a nursing home and a therapy provider for a services arrangement that allegedly violated the Federal Anti-Kickback Statute.  The Complaint alleges that RehabCare Group, Inc. paid kickbacks to Rehab Systems and its affiliate Health Systems, Inc., which, at the time, owned approximately 60 nursing homes in Missouri, in order to gain access to a lucrative stream of referrals of therapy services for Medicare and Medicaid beneficiaries.

In December 2011, the Department of Justice joined what was originally a whistleblower lawsuit brought in 2007 by Health Dimensions Rehabilitation, a competitor of RehabCare.  The federal investigation that ensued revealed that RehabCare paid more than $10 million in kickbacks to Health Systems in exchange for the referral of business.  Specifically, the Complaint claims, RehabCare made a one-time payment of $600,000 to Rehab Systems in 2006 and agreed to give Rehab Systems a 5-year contract guaranteeing Rehab Systems a portion of RehabCare’s revenue—RehabCare would charge Rehab Systems/Health Systems only 70% of the Medicaid reimbursement amount, while they, in turn, billed the government for 100% reimbursement.  The organizations then split that 30% difference.  Essentially, the DOJ surmised, in exchange for directing the therapy business at the nursing homes to RehabCare, Rehab Systems received an up-front payment and was guaranteed over 10% of the revenue from the ongoing contract therapy operations.  And, the Complaint highlights, aside from continuing to deliver the business to RehabCare, Rehab Systems provided no services and no value in return.  This arrangement allegedly defrauded the federal Medicare and Medicaid programs of millions of dollars.  RehabCare denies any wrongdoing and expressed its intent to vigorously defend against the allegations.

Interestingly, the Complaint asserts that RehabCare was originally interested in purchasing Rehab Systems but correctly determined that paying a purchase price that took into account the value of the referrals from nursing homes controlled by Rehab Systems’ majority owner, James Lincoln, would violate the Anti-Kickback Statute.

The lawsuit, which was transferred from the U.S. District Court in Minnesota to its counterpart in St. Louis, Missouri in May 2012, seeks treble damages plus civil penalties of up to $50,000 per false claim—which may total in the hundreds of millions of dollars.

Conclusion

These ten instances of prosecution are illustrative of the continued trend of heightened healthcare enforcement activity against nursing home owners and operators.  And the authorities’ staggering success in these actions suggests that providers can expect even further expansion in the coming years.  As such, the imperativeness of having a robust multi-faceted team of professionals with a deep understanding of the synthesis between the business and legal spheres of the nursing home industry cannot be overstated—a makeshift compliance and ethics program simply will not suffice.  The astonishing enhancement of enforcement tools and punishments at the disposal of law enforcement agencies coupled with the multiplied resources being invested into utilizing these tools and the extraordinary willingness to hold individuals responsible makes the potential peril of prosecution too great to nonchalantly discount.  The time to act is now.

For assistance in structuring a practical and effective eight-part Compliance and Ethics Program as mandated by the 2010 health care reform law (PPACA); federally-required Governing Body services; Professional Liability litigation management; Employee Compliance support; Crisis Management; and/or Spokesperson Services, please contact us at (888) 99-RYTES or info@rytescompany.com.



[1] Atlanta Special Agent in Charge Brian Lamkin remarked: “The level of greed and lack of compassion for others that was seen in this case reflect the very reason why the FBI, in working with its many and varied law enforcement partners, dedicates vast investigative resources to combating health care fraud.”

[2] When pressed with questions as to why ownership was not charged for its role in Esco’s death – namely, its alleged failure to provide enough staff – AG spokesman Lynda Gledhill explained that the owners of Horizon West “were very cooperative and took action as soon as the situation came to light.”