THE GOVERNING BODY: What is its Role in a Nursing Home and Who Should Fill the Position?
Updated: November 1, 2011
The Federal Government requires each nursing home facility to “have a governing body, or designated persons functioning as a governing body.” The Governing Body is “legally responsible for establishing and implementing policies regarding the management and operation of the facility.” By Federal Law, the Governing Body is also tasked with “appoint[ing] the administrator who is (i) licensed by the State where licensing is required; and (ii) responsible for management of the facility.”[i] Despite the Federal mandate, some nursing homes do not have Governing Bodies or the owners themselves become the Governing Body, by design or default. Given the recent trends in prosecutions, this does not seem to be a good idea.
Criminal and civil enforcement actions against nursing homes – on both the Federal and State levels – have skyrocketed in the past two years, as government agencies have doubled-down on their investment in healthcare fraud and abuse prosecutions, expanding and enhancing the armies they have dedicated to the cause. In April 2011, the Office of Inspector General (“OIG”) of the Department of Health and Human Services – just one of dozens of healthcare enforcement agencies – boasted that it employs “1,700 dedicated professionals, including a cadre of over 450 highly skilled criminal investigators” who “opened over 1,700 healthcare investigations and obtained over 900 criminal convictions and civil actions…. [which] have resulted in over $3.7 billion in expected criminal and civil recoveries during .”[ii] Recent government statistics further reveal that federal healthcare fraud prosecutions in the first eight months of 2011 are on pace to rise 85% over 2010.[iii] The study estimates that the total number of prosecutions for 2011 will exceed 1,350. While the Federal Government has yet to weigh in on where the Governing Body fits into all of this and what liability may be attributed to the entity and/or its members, the OIG has repeatedly taken the position that the Social Security Act allows it to “hold responsible those individuals accountable for corporate misconduct”[iv] and authorities have, in fact, brought criminal actions against nursing home owners and operators, in their individual capacity. The result has ranged from fines, short terms of incarceration and program exclusion[v] to decades in prison.[vi]
Pointing to the seminal case of Estate of Canavan v. National Healthcare Corp., many plaintiffs’ lawyers insist that an owner who is a member of the Governing Body can be held personally liable for policy-level decisions made in his official capacity, which indicate an “elevation of profit over patient care.” [vii] While we believe that this view reads Canavan more broadly than intended, what is clear is that owners must take the appropriate action to insulate themselves from liability. To that end, owners should always have a formal Governing Body in place and seriously consider who they engage to help them fulfill this Federal responsibility.
For assistance in federally-required Governing Body services; structuring a practical and effective eight-part Compliance and Ethics Program as mandated by the 2010 Healthcare Reform (PPACA); Professional Liability litigation management; Employee Compliance support; custom-built Policies and Procedures; Crisis Management; and/or Spokesperson Services, please contact RYTES Company at (516) 622-2333 or firstname.lastname@example.org.
This article was authored by RYTES Company’s Aaron Lichtman and Adam Ostreicher. Mr. Lichtman received his J.D. from New York Law School in 1990 and has, for more than a decade, represented nursing home owners and other healthcare entities and their owners, handling a wide range of business and legal matters. Mr. Ostreicher, a J.D. recipient from Fordham University School of Law in 2007, has been surrounded by nursing home owners for nearly all his life and has counseled numerous businesses and individuals in addressing various legal issues.
[ii] Testimony of Gerald T. Roy, Deputy Inspector General for Investigations, before the House of Representatives’ Committee on Oversight and Government Reform and Subcommittee on Healthcare, District of Columbia, Census and the National Archives.
Victor Napenas, owner of New Jersey’s Valley Rest Nursing Home, was sentenced to 30 days in jail; 3 years probation; 8 years exclusion from acting as a Medicaid provider; and was ordered to pay $380,000 in restitution and penalties in August 2010, after pleading guilty to Medicaid fraud relating to questionable billing practices and substandard care, including improper and unsubstantiated costs.
Emmanuel Bernabe, owner of what was the second-largest nursing home chain in California, Pleasant Care Corporation, agreed in 2009 to be excluded permanently from Federal healthcare programs – despite maintaining his innocence – relating to allegations of providing care that failed to meet professionally recognized standards by providing inadequate staffing levels, among other deficiencies.
Robert Wachter, owner/CEO of American Healthcare Management, was sentenced in 2007 to serve 18 months incarceration and fined $29,000 for conspiring to defraud Medicare and Medicaid by providing inadequate staff, which was found to have caused numerous residents to suffer from dehydration, malnutrition and life-threatening bed sores. Wachter’s role in determining budgets, which resulted in the implemented staffing limitations, was key in finding him individually liable. Related civil charges were settled by an agreement that included Wachter’s exclusion from all healthcare programs for 20 years.
Rocky Lemon, owner and/or operator of over 50 nursing homes nationwide, was sentenced in Texas in April 2007 to 42 months imprisonment; 3 years of supervised release after completing his imprisonment; and ordered to pay over $4 million in restitution to Medicare and Medicaid as a result of his convictions for healthcare fraud and money laundering, involving the diversion of funds for personal use.
Umawa Oke Imo, owner of City Nursing Services of Texas, was sentenced in October 2011 to 27 years in Federal prison and ordered to pay $30.2 million in restitution for his role in a healthcare fraud conspiracy – including dubious billing and record-keeping practices – which prosecutors say resulted in the billing of the Federal Medicare and Texas Medicaid programs for $45 million over a 2-and-a-half year period.
Martha Bell, owner/administrator of the now defunct Ronald Reagan Atrium I Nursing and Rehabilitation Center in Pennsylvania, faced multiple Federal and State criminal trials in 2006 and 2007 and was sentenced to (i) 5 years in Federal prison, 3 years of supervised release after prison and ordered to pay $50,000 in fines for her role in the home’s practice of billing Medicare and Medicaid for services provided to residents that either were not provided or were substandard; (ii) 22 to 44 months in State prison for involuntary manslaughter, neglect of a care-dependent person, conspiracy and reckless endangerment for her role in the October 2001 death of an 88-year-old resident and the ensuing cover-up attempt; and (iii) 6 to 12 months in jail, 14 years of probation, and permanent exclusion from holding any position in any skilled nursing facility or nursing home for stealing from the home to pay her legal bills.
[vii] In Estate of Canavan v. National Healthcare Corp., 889 So.2d 825 (Fla. 2d DCA 2004), the Florida District Court of Appeal reversed the lower court’s ruling and declared that a defendant who was a member of the LLC that owned the property upon which the facility resided, a shareholder of the corporation that operated the nursing home and the director and sole member of the Governing Body of the facility, was subject to charges of negligence for making certain policy-level decisions affecting the nursing home. Specifically, the court ruled that the defendant could be held directly liable for elevating profit over patient care by ignoring complaints of inadequate staffing (in the form of, inter alia, survey results) while cutting operating expenses. The understaffing allegedly contributed to the harm suffered by the deceased, including pressure sores, infections, poor hygiene and dehydration. As Governing Body and director, the defendant was not shielded from personal responsibility for an alleged poor budgetary decision and failure to act – conduct performed in his official capacity – relating to corporate management.
Canavan has been widely regarded as a departure from courts’ faithful application of the sacrosanct Business Judgment Rule, as an owner and member of the Governing Body was held individually liable for decisions made in his official capacity.