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Bluffing: A billionaire's high-stakes gamble with patient lives
The North Coast Journal
Are the most vulnerable patients in Humboldt County — the disabled and the elderly — better off here than they would be in skilled nursing facilities hundreds of miles away in Redding or Santa Rosa? For the concerned family members and patient advocates who spent the last four months fighting to keep Brius Healthcare from closing three of its five Humboldt facilities, the answer is yes. But news that the company would only close one facility — Pacific Rehabilitation and Wellness Center — might be a bittersweet victory. There is nothing to prevent Brius, which has a virtual monopoly on skilled nursing in Humboldt County, from threatening to once again withhold care. The service these facilities provide — rehabilitation and daily medical assistance — is vital. It is also, according to state and federal audits, substandard, poorly tracked and almost impossible to fix with the system currently in place.
Many of us will not know what a skilled nursing facility is until we have the misfortune of having to use one. This is the case with Jolon Wilson, who was severely injured in a car crash last January and spent several weeks in a Santa Rosa hospital before transferring to a top-rated care home, Broadway Villa, in Sonoma. It was challenging to be away from her family and support network, Wilson said, but she concentrated on getting better. She returned home in March. Shortly thereafter, her mother, Joan Poe, broke an ankle and needed rehabilitation of her own. Wilson assumed that Eureka Rehabilitation and Wellness Center would be similar to the facility in Sonoma. It was not.
"The hardest part for me was that they had four beds in one room," said Wilson, who compares the Eureka facility to "something out of the 1950s." "Four beds, and no bathroom, just a sink. At night, I think they just put everyone in diapers."
Because there were so few staff members on duty, Wilson began spending as much time as possible caring for her mother herself, making sure that she ate and visited the bathroom. Those on duty seemed dedicated, she said, but complained of being understaffed. Wilson filed a formal complaint but she said it went "nowhere."
"It only seemed to get the people in trouble that were not the problem," she said. "I heard one CNA say to another, 'You can't go talking to family members.'"
Wilson did not know that the place where her mother was staying has one of the worst ratings for care in the state. She did not know its owner Brius Healthcare Services has more than 80 homes in California. And she did not know that Brius is owned by Shlomo Rechnitz, a Los Angeles-based billionaire who has been called a "serial violator" of state and federal regulations. In 2014, he was the subject of a class-action lawsuit due to alleged understaffing. The following year, two Rechnitz facilities were raided by the Federal Bureau of Investigation. Three of his facilities have been decertified by the federal government in the past five years, an extremely rare recourse, and the state has also attempted to block him from purchasing facilities in California due to his track record of substandard care.
Around the time Wilson was making her mother comfortable in Eureka, Rechnitz was about to try to leverage his local skilled nursing monopoly to extract more taxpayer dollars from the MediCal system for the second time in two years.
To understand how anyone can build an empire, as Rechnitz has, off the backs of the elderly and infirm, it might be useful to compare the facility where Wilson stayed, which the federal government's nursing home comparison website rates as "above average," to the one in Eureka — rated "below average" — where her mother recuperated. Sonoma's Broadway Villa facility, which has 144 beds, spent $22,376 on patient supplies between November of 2014 and October of 2015, according to financial data available from the Office of Statewide Health Planning and Development. Reports for the same fiscal year say Eureka Rehabilitation, with 99 beds, paid $95,367 for "routine supplies" to TwinMed, a company that Rechnitz also owns. In pricey Sonoma County, Broadway Villa paid $587,318 to lease its facility, which was newly renovated when Wilson stayed there. In rural Humboldt County, Eureka paid $864,899 to lease a facility that first opened in 1967, where four elderly women were lodged in one room without a bathroom. Rechnitz holds the lease agreements for all five of his Humboldt County facilities, which according to research from the National Union of Healthcare Workers, last year paid twice as much per bed in rent ($8,481) as a comparable company in Marin County ($4,813).
Included in the lease agreement, which was forwarded to the Journal by NUHW staff, is a condition that Rechnitz reinvest $3 million back into infrastructure repairs on the facilities. A check of permits pulled for all five facilities reveals this work has not been done. The company may plead poverty: On paper, Eureka charted a staggering $1 million dollar loss for the 2014-15 fiscal year. But according to these same records, all five companies sent around $4.6 million back to companies associated with their owner, who in 2015 said his income was around $3 billion a year.
To understand how anyone can sustain such an empire without being halted by state or federal authorities, it's important to understand just how achingly slow and ineffective the current system can be at enforcing proper patient care. Federal and state inspectors visit facilities in Humboldt County about every 14 months to see if they're fit to be re-certified. They also make surprise visits to investigate complaints, like the one Wilson filed. In 2009, when Humboldt County facilities were under a previous owner, Skilled Healthcare Group, the federal government gave three of the facilities its lowest possible rating: "much below average."
Rechnitz scooped up the facilities in 2011, after plaintiffs won a class-action lawsuit against Skilled Healthcare, which was not meeting minimum staffing mandates. What was initially seen as a victory for patient care advocates quickly turned sour when it became clear that Brius' purchase of the facilities meant one of the most important conditions of the settlement — stricter independent monitoring of the facilities — would not be upheld. According to state records, little has changed. One facility — Fortuna Rehabilitation and Wellness Center (formerly known as St. Luke's) — has moved the needle from "much below average" to "average." Two others, Granada and Seaview, are still listed as "much below average," with inspectors noting issues in 2015 with medication recordkeeping, infection control and failing to report a physical altercation between two residents to state authorities. State records of complaints and deficiencies (incidents where a facility is found to be out of compliance with state or federal law) are equally stagnant. In the four years before Brius bought the facilities, surveyors with the California Department of Public Health recorded 592 deficiencies for the five facilities. In the four years after the sale, they found 590.
The state and federal reports for these facilities, tucked in obscure corners of bureaucratic websites, often include redacted descriptions of small dramas and painful neglect. For example, in December of 2015, a dementia patient in Seaview was left in a wheelchair with a seatbelt she could not unbuckle, a violation of state law which prohibits restraining patients. The woman was seen pushing herself up and down hallways unattended, attempting to leave the facility and sliding down in the chair to the point that the seatbelt could have cut off her breathing. An audit of the staff's response time to call lights that year indicated patients often waited between 11 and 30 minutes for care, which caused "distress and incontinence." Inspectors also noted improper wound care: One patient had ulcers that required daily cleaning, but records indicated the dressings were only changed four times over a period of nine days.
None of these incidents inspired a severe citation from federal inspectors, who in 2015 consistently marked every incident in each of the facilities as having "minimal harm or potential for actual harm" to patients.
Anthony Chicotel, staff attorney with California Advocates for Nursing Home Reform, said his organization has noticed a trend of inspectors downgrading the severity of issues, especially those that do not reach the level of physical harm. Deficiencies are graded on a scale from A to L, with L being the most serious rating, reserved for conditions posing immediate jeopardy to many residents. But grading is at the surveyors' discretion and Chicotel said they are often reluctant to blow the whistle.
"The workload of the surveyors is a big issue. It's almost guaranteed if you give something a G or above, it's going to be appealed," Chicotel said. "Chances are it might be litigated, then you're pulled into a deposition with multiple people looking over your shoulder. Of course, that's not every surveyor."
Chicotel said there is an extra reason that consumers should be alarmed at a one-star rating for any California facility. California is one of the only states to mandate a specific number of staffing hours per patient per day (3.2). Staffing hours are one of three factors used to determine the final score for a facility; health inspections and quality of care fill out the rest of the grade. Consequently, all California facilities should get an automatic boost in their final scores just for meeting state-mandated staffing requirements. A California facility scoring one star out of five means that the results of health inspections and quality of care must be especially dismal. Only 8 percent of all facilities in the state fall into the "much below average" category. Two of them — Seaview and Granada — are in Humboldt County. Our remaining three facilities were rated as "average" or "below average" in 2015.
The Centers for Medicare and Medicaid Services did not respond to the Journal's request for comment on why these consistently underperforming facilities have not been decertified. The California Department of Public Health, which conducts these audits as subcontractors for the federal government, said it also could not comment.
In 2016, CDPH substantiated 18 complaints against Humboldt facilities related to accusations of everything from poor medication record keeping and mental abuse to providing a quality of care that endangered resident safety. Among the substantiated complaints was a June 2016 incident in which a Granada patient was admitted to St. Joseph Hospital with symptoms of a severe infection, possibly from a pressure sore. A nursing assistant and nurse both noted these symptoms during the day shift at Granada but failed to contact a physician or report them to the oncoming shift. When the patient became unresponsive during the night, she was sent to the hospital and placed on mechanical ventilation. The facility was fined $60,000 for the incident.
Fines represent one of the strongest measures the state can levy against facilities, but documents collected by the National Union of Healthcare Workers reveal many of the financial penalties levied against Brius' Humboldt facilities have not actually been collected. Of the $60,000 in fees for which the NUHW was able to obtain records, only $23,000 was ultimately collected by the state. The CDPH confirmed that the remaining money was dismissed after appeals by Brius, a company that brought in $77 million in profits from its California facilities in 2014, according to a report filed with the California Attorney General's Office.
According to Chicotel, the state has a disincentive to pursuing litigation that is baked into current law: MediCal reimburses skilled nursing operators for the cost of litigation, meaning if the state sues Brius to force compliance, taxpayers are covering the company's legal fees. This expense is usually itemized in annual reports as administrative costs.
Chicotel referred to the skilled nursing system as being outside of the "normal market forces" present in a free-market, capitalist system.
"There's no real quality-based care," he said. "The reimbursement happens whether or not you provide quality care."
In 2015, the Journal investigated why Brius' holdings in Humboldt County stopped accepting patients for several months. The shut out stranded some patients without proper care and forced others to stay in facilities hundreds of miles away from their families. When it became apparent the company was negotiating with the local MediCal administrator, Partnership HealthPlan of California, for a higher MediCal reimbursement rate, using the fate of patients as a bargaining chip, we asked then-CDPH spokesperson Corey Egel if there was anything the agency could do. He said, in essence, no.
The state apparently has no mechanism to force private companies like Brius to accept the patients they're licensed to serve, and only a limited arsenal at its disposal to make sure the MediCal dollars the companies receive go back into patient care rather than the pockets of their owners. According to documents available through the CDPH, Brius facilities in Humboldt County reduced admissions by 30 percent from 2014 to 2015. But, curiously, the amount spent on medical supplies jumped. OSHPD records show Humboldt facilities purchased $117,000 more in "routine supplies" from TwinMed, Rechnitz's company, in 2015 than it had the previous year, when it had more patients.
With such a lucrative business model, one might question why Rechnitz would want to shut down three of his facilities. Many, including Wilson, believe he never planned to follow through.
"I just feel like this was a big ploy," said Wilson, who brought her mother back to live with her in Scotia in early November. "The owner played the system well."
When Brius announced the closures in August, the company insisted it was struggling with an unsustainable $5 million loss due to a local nursing shortage that forced it to recruit staff from out of the area. There is a well-documented lack of skilled nursing staff in Humboldt County but the reasons management gave for the shortage (such as the lure of the marijuana industry) seemed fishy to some. What family members and patients did not know when the news came out was that the threat of closure was almost certainly a bargaining maneuver as Brius once again negotiated with Partnership, the nonprofit MediCal administrator for Northern California. During the shut out last year, Partnership, desperate to fill the Brius-sized hole in Humboldt County's continuum of care, eventually caved and increased its reimbursement rate to all providers in the region by 2 percent, offering an additional 2 percent increase if the facilities could prove they met quality-of-care measures, such as low rates of falls and infections. Those 2015 negotiations took place behind closed doors; this year, the battle would go public in a very loud and ugly way.
August emails between Rechnitz and Partnership's chief financial officer, Patti McFarland, obtained through a public records act request, seem cordial enough, with the two addressing one another by their first names. On Aug. 9, Rechnitz said that a rate increase would "solve this debacle." Partnership held firm, insisting that it was reimbursing the facilities above what the state required, and would only give them additional money if "quality-of-care measures were met." McFarland also offered to help Brius "look internally" for ways to address cost issues.
Brius' response was to file closure plans with the state on Aug. 25, a move that alarmed patient advocates and residents. State Sen. Mike McGuire and Assemblymember Jim Wood, along with several advocacy groups, wrote to the California Department of Public Health to express concern that the plans were inadequate and patients would incur trauma from moving. It soon became evident that, while the CDPH could review the plans and ask Brius to strengthen them (they did), it could not actually stop the private company from closing.
On Sept. 8, Vincent Hambright, CEO for Rockport Healthcare, Brius's administrative company, met with patients and family members at Eureka Rehabilitation and Wellness to discuss the potential closure. The meeting was held mid-afternoon on a weekday, with one day's notice to family members. In the meeting, Hambright denied knowing who Shlomo Rechnitz was, even as Rechnitz was exchanging emails with McFarland. He also denied that the facilities were understaffed as patients and family members at the meeting insisted the opposite.
Around mid-September, negotiations between Partnership and Rechnitz appeared to deteriorate. The initial closure plans, rejected by the state on Sept. 9, were quickly revised by Rockport and resubmitted. But the push and pull over reimbursements continued, with Rechnitz asking McFarland which facilities in Oregon Partnership would consider contracting with, as Rockport had "already begun assessing residents."
The emails indicate Partnership asked Brius to look into closing just one facility — Pacific — and spreading that facility's staff through its remaining four facilities. Despite having the lowest level of complaints and deficiencies of all the facilities, Pacific remained a good candidate for closure because of existing infrastructure issues, including a faulty heating system and problems with the roof, both of which have been investigated by the state.
Partnership also asked Rechnitz about the possibility of buying the facilities. Rechnitz indicated he would be willing to "give away" the operations and businesses, but asked $32.6 million for the real estate. Several commercial real estate agents contacted by the Journal said the price was far and away above the five properties' market value. Partnership also said it would be interested in just buying the three facilities Brius was ready to close but was turned down, as Rechnitz said he didn't want Brius to be in competition with the nonprofit.
On Sept. 28, the same day the state accepted the revised closure plans from Rockport, Rechnitz sent off a fiery email to McFarland, saying that Partnership CEO Liz Gibboney's representation of the sale discussion made Brius "look like liars."
"It's actually highly concerning that you would watch the patients and families suffer as they are displaced just so you can make more money," Rechnitz wrote. "You have a responsibility to these people and you're treating them like mere numbers. Your actions are unconscionable. As I now know your true colors, I will act accordingly."
Whether Rechnitz was referring to internal negotiations or the extremely ugly public relations battle that would ensue is unclear. What we do know is that over the next few weeks, Brius purchased several full-page advertisements in the Times Standard smearing Partnership and blaming it for the pending closures. One hundred and seventeen Rockport employees signed a letter calling on Partnership to pay up. Rockport employees called family members of patients and invited them to take part in a protest outside Partnership's Eureka office on Oct. 27. In early November, patient advocates contacted the Journal to say that patients and family members were being asked to join a lawsuit against Partnership. (Neither Partnership nor Brius' spokespeople returned calls for this story but, as of our last communication in November, no such lawsuit had officially been filed.)
But Partnership didn't budge and, on Nov. 7, Brius formally backed down, issuing a statement: "We have decided that despite the enormous financial difficulty we will sustain as a result, there is no way we can close these facilities." In the letter, the company announced it will establish a charity foundation to directly fund its losses. Brius' spokesperson Stefan Friedman did not return Journal emails requesting more information about this foundation and how it will work. Brius did close Pacific Rehabilitation and has transitioned patients out of the facility over the last few months.
It remains to be seen how or if state law can be changed to prevent these facilities from withholding care, and to shore up the connection between taxpayer dollars and actual quality of care. Although legislative priorities for the year have not been finalized, our local state representatives, McGuire and Wood, both said they are examining how the state can better prevent companies like Brius from exploiting the system.
"Our early thoughts are that there should be a separate standard and additional oversight if there is a monopoly in one market," said McGuire. "What we discovered is that the way the law is written now, all the power is in the hands of the operator."
Catherine Pugel, whose parents John and Ellie Catudal celebrated their golden wedding anniversary together at Eureka Rehabilitation, said the four months of stress surrounding the proposed closures were "like a game" to Rechnitz. Pugel says her parents had come to see the Eureka facility as their home, and her father suffered stress and depression when he learned they would have to move. Her mother, Ellie, had dementia but was used to the routine at Eureka. Staying in the same room as her husband of 50 years seemed to help. With no solid answers as to what would happen to her parents — she was told the facility might shut in 30 days, 60 days or not at all — Pugel moved proactively to keep them together, finding them a room in Brius's Fortuna facility.
Despite only moving a few miles, Pugel said the change in location was traumatic. John Catudal became even more depressed. Her mother went from being "joyful" to not speaking. Ellie Catudal "never really bounced back" from the move, Pugel said. John asked that their beds be pushed together so he could reach out and hold her hand in the night. But Ellie Catudal gradually became less and less responsive. She finally passed away on the evening of Dec. 15.
Pugel said she is "carrying the burden" of making the decision to move her parents, one she now realizes was unnecessary.
"I was very frustrated," she said of learning that the owner was not going to close the facility after all. "My god, what the patients went through, not knowing where they would end up. How unfair to take this to this extent, to put the families through this. People's lives are not games."