Nursing home owners drained cash while residents deteriorated, state filings suggest

After the nursing home where Leann Sample worked was bought by private investors, it started falling apart. Literally.

Part of a ceiling collapsed on a nurse, the air conditioning conked out regularly, and a toilet once burst on Sample while she was helping a resident in the bathroom, she recalled in a court deposition.

"It's a disgusting place," Sample, a nurse aide, testified in 2021.

The decrepit conditions Sample described weren't due to a lack of money. Over seven years, The Villages of Orleans Health & Rehabilitation Center, located in western New York near Lake Ontario, paid nearly $16 million in rent to its landlord — a company that was owned by the same investors who owned the nursing home, court records show. From those coffers, the owners paid themselves and family members nearly $10 million, while residents injured themselves falling, developed bedsores, missed medications, and stewed in their urine and feces because of a shortage of aides, New York authorities allege.

At the height of the pandemic, lavish payments flowed into real estate, management, and staffing companies financially linked to nursing home owners throughout New York, which requires facilities to file the nation's most detailed financial reports. Nearly half the state's 600-plus nursing homes hired companies run or controlled by their owners, frequently paying them well above the cost of services, a KHN analysis found, while the federal government was giving the facilities hundreds of millions in fiscal relief.

In 2020, these affiliated corporations collectively amassed profits of $269 million, yielding average margins of 27%, while the nursing homes that hired them were strained by staff shortages, harrowing injuries, and mounting deaths from COVID-19, state records reveal.

"Even during the worst year of New York's pandemic, when homes were desperately short of staffing and their residents were dying by the thousands, some owners managed to come out millions of dollars ahead," said Bill Hammond, a senior fellow at the Empire Center for Public Policy, a think tank in Albany, New York.

Some nursing home owners moved money from their facilities through corporate arrangements that are widespread, and legal, in every state. Nationally, nearly 9,000 for-profit nursing homes — the majority — outsource crucial services such as nursing staff, management, and medical supplies to affiliated corporations, known as "related parties," that their owners own, invest in or control, federal records show. Many nursing homes don't even own their buildings — they rent the space from a related company. Homes pay related parties more than $12 billion a year, but federal regulators do not make them reveal how much they charge above the cost of services, and how much money ends up in owners' bank accounts.

In some instances, draining nursing home coffers through related parties may amount to fraud. Along with The Villages' investors, a handful of other New York owners are facing lawsuits from Attorney General Letitia James that claim they pocketed millions from their enterprises that the authorities say should have been used for patient care.

Deciphering these financial practices is timely because the Centers for Medicare & Medicaid Services is weighing what kind of stringent staffing levels it may mandate — potentially the biggest change to the industry in decades. A proposal due this spring is sure to spark debate about what nursing homes can additionally afford to spend versus what changes would require greater government support.

Federal Medicaid experts warned in January that transactions with affiliated companies that share the same owner as the nursing home or are controlled by the same people "may artificially inflate" the true cost of nursing home care in reports that facilities file to the government. And the U.S. Department of Health and Human Services' inspector general is investigating whether homes properly report related-party costs.

'A dog would get better care'

Beth Martino, a spokesperson for the American Health Care Association, said there is no evidence that related companies charge more than independent contractors do for the same services. "The real story is that nursing homes are struggling right now — to recruit and retain caregivers and to keep their doors open," Martino said.

Lawyers for The Villages and its investors have asked the judge in the case for a delay until April to respond to the allegations of fraud and resident neglect in the lawsuit that the attorney general filed last November. One of the lawyers, Cornelius Murray, said in court papers that many allegations of short-staffing occurred during the pandemic when workers were out sick and the facility was required to accept any patient who had COVID-19. The attorneys for The Villages declined to discuss the case with KHN.

In a deposition for that case, Ephram "Mordy" Lahasky, one of Fulton's owners, disputed that he and fellow investors improperly depleted The Villages' resources to the detriment of residents.

"I can assure you there was a lot of money left in the facility to make sure that it was not running on a shoestring budget," he testified. The Villages, Lahasky said, was a "beautiful facility" with "beautiful gardens" where "residents look great" and employee morale was strong.

That wasn't the opinion of Margarette Volkmar, the wife of one of the facility's residents. She said in an affidavit filed with the state lawsuit that her husband was left in his bed with only a diaper on, was bruised by a fall, choked by another resident, given the wrong medication doses, dressed in other residents' clothes and covered in bruises that could not be explained. After she moved him to another home, she testified, he gained back the 60 pounds he had lost and never fell at the new facility.

"I wouldn't put a dog in Villages," she said. "A dog would get better care than he did."

The owners invested in hundreds of homes

Both The Villages and its related real estate corporation, Telegraph Realty, were controlled by the same trio of investors, although they arranged for the nursing home to be listed in regulatory filings as solely owned by a silent partner and did not disclose their co-ownership of The Villages, court records show. One co-owner, David Gast, disclosed his net worth was $22 million and revealed that he had shares in more than 100 nursing homes, according to a loan application included in court records. Lahasky, whose disclosed net worth was nearly $73 million, said in a deposition he was the biggest nursing home proprietor in Pennsylvania and owned one of New York's largest ambulance companies.

A third co-owner, Sam Halper, who reported a net worth of about $23 million, is under federal criminal indictment in Pennsylvania on charges of submitting false reports to the government about staffing and patient health at two nursing homes. He has pleaded not guilty. Added together, all the investors in corporations tied to The Villages have stakes or official roles in 275 other facilities across 28 states, federal records show.

The lease that The Villages had with Telegraph Realty required the home to pay up to $1 million in profits on top of the costs of debts and $50,000 a month for rent, according to a copy filed with the lawsuit. The attorney general alleged that, over seven years, the owners gave themselves and other investors more than $18 million from outsized rent profits, management fees, and proceeds from refinancing the property, an act that saddled The Villages with higher debt.

Lindsay Heckler, a supervising attorney at Center for Elder Law & Justice in Buffalo, which provides free legal help to older, disabled, and low-income adults, said she is concerned other nursing home owners in the state fail to provide quality care after purchasing facilities.

"When you see quality of care decline after an ownership change, the question needs to be asked: What's going on with the finances?" she said.

Inflated rents — paid to sister companies — aren't uncommon

Separating a nursing home operation and its building into two corporations is a common practice around the country. In New York, for-profit nursing homes with related-party realty companies spent 19% more of their operating revenue toward rent in 2020 than did for-profits that leased from unaffiliated firms, KHN found.

Fulton Commons Care Center, a nursing home on Long Island, spent nearly a third of its 2020 revenue on rent, a higher portion than all but three other facilities in New York, financial records show. In a lawsuit filed in December, the attorney general charged that the rent paid to Fulton Commons Realty, the company that owned its East Meadow, N.Y., building, was grossly inflated. Both the home and real estate company were owned by Moshe Kalter and his extended family, according to documents filed with the lawsuit.

In 2020, the nursing home paid nearly $10 million in rent to Fulton Realty, but an auditor for the attorney general calculated the property expenses that year were less than $6 million. The owners of Fulton and their families gave themselves nearly $16 million over four years from inflated rent, substantial management fees, and "no-show" jobs for Kalter's eight children, the attorney general alleged.

"Rather than honor their legal duty to ensure the highest possible quality of life for the residents in their care, the Fulton Commons owners allegedly maintained insufficient staffing so they could take more money for their own personal gain," James said in a statement.

Raul Tabora Jr. and David Yaffe, lawyers for Kalter, called the lawsuit's charges "one-sided" in a written statement to KHN. They said that the payments to the children were not for jobs but because they were shareholders, and that Fulton kept an average balance of $3 million on hand to cover any pressing needs. "The evidence will demonstrate that any time resources are needed, they are provided by Mr. Kalter," the lawyers wrote.

Residents' families told investigators that staff shortages existed well before the pandemic. In an affidavit filed with the lawsuit, Frank Hoerauf Jr. said workers left his father sitting in adult diapers without pants and let his hair grow so long it covered his eyes. Another time, they left his father screaming in pain from a urinary tract infection, he said.

"Fulton Commons seems like it was operated to be a cash machine for the owners," Hoerauf said. "The care and the quality of life for residents there was very poor."

Another resident, Elena Milack, who had lost one foot to diabetes, complained about poor care for years, including having to ring the call bell for an hour to get help to get to the bathroom, according to an affidavit filed by her daughter-in-law, who was also Milack's health proxy. "GET ME OUT OF HERE OR TELL ME WHAT I CAN TAKE TO KILL MYSELF," she texted her son in the summer of 2019. In 2020, she contracted an infection that turned her remaining foot black.

"Toes are all infected now," Milack, a retired law school secretary, texted. "[M]y upper foot is dying and will soon fall off. I am hoping the good Lord will take me before that happens." She died in November 2020.

Kalter said in a deposition he had never stepped inside his nursing home and did not supervise the quality of the care. He testified he granted full authority over the facility to its administrator and relied on his nephew, who was the controller of the nursing home, to interact with the home's leadership, according to court records.

In his deposition, Kalter said: "I have no personal knowledge of anything that's going on in the nursing home."

According to an affidavit from an auditor for the attorney general's office, over the course of four years, Kalter deposited nearly $12 million from Fulton into the personal bank account he holds jointly with his wife, Frady.

KHN data editor Holly K. Hacker contributed to this report. KHN (Kaiser Health News) is a national, editorially independent program of KFF (Kaiser Family Foundation).