False Claims Act Judgment of $ 257 Million Bankruptcy of Six-Entity Nursing Home
Six qualified nursing entities – spanning operations, management and rehabilitation – filed for Chapter 11 bankruptcy this week after reinstating a multi-million dollar judgment under the False Claims Act (FCA) against them last year.
The entities themselves are part of a group of companies affiliated with the main nursing home operator, Consulate Health Care, but filing for bankruptcy is limited to the six limited liability companies involved in the FCA case – a case in which the consulate has never been involved with or affiliated with, according to a statement from the operator provided to Skilled Nursing News via email.
“The Consulate is not, and never has been, a named defendant in the lawsuit; nor the 138 remaining health centers which are not affected by this affair and will continue to carry out their activities as usual, ”the statement said. “Put more clearly, Consulate Health Care is not going bankrupt and remains committed to providing excellent care and service to our residents, patients, families and local communities.”
Law360 first report on bankruptcy March 2.
The entities involved in the bankruptcy case are: 207 Marshall Drive Operations LLC (Marshall), 803 Oak Street Operations LLC (Governor’s Creek), Consulate Management Company, LLC (CMC I), CMC II, LLC (CMC II), Salus Rehabilitation, LLC (Salus) and Sea Crest Health Care Management, LLC (Sea Crest).
The FCA qui tam case, a type of lawsuit that allows private citizens to file complaints on behalf of the federal government, was brought by RN Angela Ruckh in June 2011 and filed under seal in the U.S. District Court for the district central Florida.
The complaint – which has been amended several times and was under seal when the Consulate acquired Marshall, Governor’s Creek, Salus and Sea Crest in December 2011 – alleged that Sea Crest, CMC II, Marshall, Salus and Governor’s Creek had defrauded Medicare and the Florida Medicaid program. through inappropriate billing practices between January 2011 and May 2011.
According to the March 1 statement from Salus restructuring director Paul Rundell – a managing director at Alvarez & Marsal North American Corporate Restructuring – the entry of judgments on February 9 this year precipitated bankruptcy filings.
“Debtors do not have the financial capacity to meet Ruckh judgments and cannot risk disruption in the care of residents of managed SNFs that could result from the execution of Ruckh judgments,” Rundell wrote in the statement. “While debtors remain open to constructive dialogue to resolve the Ruckh cases, previous efforts have not resulted in a resolution. Accordingly, the Debtors’ efforts are focused on continuing to serve the residents of the Managed Facilities while implementing a process of marketing and selling their assets at the highest and best price and distributing the product in accordance with the priority plan of the Bankruptcy Code.
The total judgment amount for Salus, Marshall Governor’s Creek, Sea Crest and CMC II as Sea Crest successor was $ 257.72 million.
The debtors have hired Evans Senior Investments (ESI) to act as a broker in obtaining funding for the bankruptcy cases and in connection with a possible sale of the debtors’ assets, according to Rundell’s statement. An affiliate of the debtors issued them with a Debtor-in-Operator Term Sheet (DIP) proposal for a multi-draw term loan facility with a maximum credit amount of $ 5 million.
“The proposed DIP financing offers the best and only way forward to meet the immediate liquidity needs of debtors to ensure that they are able to continue to operate their businesses and ensure the care, well-being and the safety of their residents, ”the statement explained.
ESI has also helped debtors obtain “multiple termsheets from different potential buyers” of debtors’ assets, he noted.
One of the terms permits the sale of the assets of Marshall and Governor’s Creek to a third party, while the other permits the sale of the assets of CMC II and certain other assets to an affiliate of the debtors.
Marshall is a 120-bed SNF in Perry, Fla. That generated approximately $ 450,000 in free cash flow for the 12-month period ending Jan.31, 2021, according to the statement. Governor’s Creek is a 120-bed SNF in Green Cove Springs, Florida that lost approximately $ 330,000 in free cash flow over the same time period.
The cash flows of the two establishments exclude the impact of subsidies from the CARES law to combat the effects of the COVID-19 pandemic.