Lawsuit Targets Nursing Home Management, State Regulators

The suit targets Country Villa Health services

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    About 22 percent of the nation's nearly 16,000 nursing homes received the federal government's lowest rating in a new 5-star system unveiled Thursday, while 12 percent received the highest ranking possible.

    State regulators allow nursing home companies to siphon money away from patient care to pad corporate profits, alleges a lawsuit filed by a longtime foe of the industry.

    Glendale attorney Russ Balisok, who has made a career of suing nursing homes, brought the suit seeking to invalidate parts of state law that allow nursing facilities to contract out their own management. The suit, filed last month, targets Country Villa Health Services, which runs a chain of 50 skilled nursing and assisted-living facilities throughout California.

    Balisok's strategy is to attack the industry's business model. At issue are state-approved agreements in which Country Villa homes contract out their operations to another Country Villa entity. The management company gets a percentage of revenues from the homes it operates. Balisok contends that the management company doesn't actually run the facilities and instead consumes money needed to care adequately for patients.

    "It’s just their way of taking 5 percent off the top and leaving the nursing home with insufficient resources so that nursing homes limp along with poor care for patients," he said. "I want the 5 percent back."

    Country Villa provided a statement that it is in full compliance with state authorities and federal law. 

    Mark Reagan, general counsel for the California Association of Health Facilities, called Balisok's arguments "far-fetched" and defended Country Villa.

    "They are following California law, they are being transparent, they get state approval and there’s no reason they should be embroiled in the lawsuit as a result," Reagan said. "They’ve played by the rules. Mr. Balisok doesn’t like the rules."

    Reagan said there's no evidence that outside management contracts hurt quality of care.

    "It’s at best a stretch to say that somehow funds are not used for care when the funds pay the management company to operate the care facilities," he said.

    Balisok has been arguing with officials at the state Department of Public Health, whose director is named as a defendant, since last November. The attorney believes federal law prohibits nursing homes from being operated by outside companies and that federal statute trumps state rules.

    Public health officials disagreed, citing state law.

    The department "is responsible for implementing statutes and regulations affecting licensed health care facilities enacted and passed by the Legislature," a field operations branch chief wrote to Balisok in June. "Any proposed changes related to existing laws and regulations should be directed to the Legislature."

    The plaintiff in the lawsuit is California Advocates for Nursing Home Reform, a San Francisco-based organization. Prescott Cole, senior staff attorney with the group, said the government money that pays for many nursing home patients through Medicare and Medi-Cal should all go to patient care.

    The government funding, he said, "is the bare minimum. So if you get the bare minimum and you're skimming off the top, you’re really impacting the care that should be given to the individuals."

    The companies that collect the management fees aren't focused on improving patient care at nursing homes, said Charlene Harrington, UC San Francisco professor emerita of nursing and sociology. They monitor the homes mainly to cut costs and maximize revenue, she said.

    "I think it’s a serious problem because they spend so little on the actual care," she said. "They’re grossly understaffed, so the care is terrible and these management fees just contribute to the problem."

    But Reagan, of the industry association, said nursing homes' expenditures already are closely scrutinized by state regulators.

    "There is a check in the system for the state to say, 'All right, let's look at whether or not this particular cost is a reasonable cost,' " he said.

    "There’s no indication," he added, "that there’s any relationship between issues of quality and these types of operational decisions that are sanctioned by law."

    View this story on California Watch

    This story was produced by California Watch, a part of the nonprofit Center for Investigative Reporting. Learn more at www.californiawatch.org.