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Are Nursing Homes Filing for Bankruptcy for the Wrong Reasons?

June 4, 2015

As a Utah-based nursing home management company approaches bankruptcy, closing two Wyoming facilities and displacing dozens of residents, it joins a wave of health care facilities that have faced similar fates in recent years.

In February, The New York Times reported that bankruptcy filings in health care rose by 38% between 2010 and 2014, with overall filings for Chapter 11 bankruptcy protection falling nationwide during the same time period. While this trend can largely be attributed to “changes in the competitive landscape and the impact of new health care law,” the paper reports, some nursing home facilities and management companies seem to be seeking bankruptcy protection for another reason – one that should interest anyone who is concerned with the wellbeing of our parents and grandparents.

A Troubling Pattern of Bankruptcy Filings


A string of nursing home chains have recently filed for bankruptcy, not because they are unprofitable or in debt, but rather as a way to avoid impending lawsuits, brought on primarily by elderly residents who have experienced neglect in a nursing home’s care.


These lawsuits are on the rise, and it is no wonder: according to one 2014 study, one in three patients who leave hospitals to go to long-term nursing facilities are harmed in their treatment at their new homes.


“Nursing home residents all over the country are suffering from injuries and are seeing their health decline due to neglect on the part of nursing home staff and leadership,” says Kimmel Carter Managing Partner Lawrance Kimmel, who has significant experience representing nursing home neglect victims and their families.


Several types of neglect may lead to injury and other health issues, Kimmel says, from neglect of basic needs, including food and water, to a lack of proper medical attention or medication for bed sores, infections and other conditions.


Since legal actions are halted when a company files for bankruptcy, doing so is one way that some nursing home management companies are dodging their accountability for incidences of inadequate care.


The group of nursing home management companies that have seemingly sought bankruptcy for this reason includes the Country Villa chain, which operated 19 facilities throughout California before its legal troubles began. Facing seven class action lawsuits, including two alleging improper patient care and one related to medications, Country Villa filed for Chapter 11 bankruptcy protection in March 2014. While the company did have issues related to its cash flow, Country Villa’s chief executive admitted that his employer’s legal problems were the primary reason for the filing, The Wall Street Journal reported.


Before the nursing home management company could be held responsible for the damages suffered by the plaintiffs, Country Villa was dissected in federal bankruptcy court, according to The Sacramento Bee. Its facilities were ultimately sold for $62 million cash to an entrepreneur named Shlomo Rechnitz, who owns more nursing homes than anyone in California, and whose homes, the paper reports, “have been the target of more complaints and federal deficiencies per bed than most other large chains in [the state].”

Another California nursing home chain, North American Health Care, filed for bankruptcy in February of this year when it was fined by the state for inadequate care and facing several lawsuits. As The New York Times reported, the company’s action was regarded by the plaintiffs’ attorneys as a less-than-pure legal maneuver to “avoid what could be catastrophic legal verdicts,” rather than a reasonable response to financial setbacks.


Critics of the filings made by North American and Country Villa, which was cited in the New York Times coverage of North American’s actions, were primarily concerned by the fact that the California companies sought bankruptcy protection while they were still profitable, counter to the spirit of bankruptcy laws. One lawyer who is suing North American outlined her perspective for the Times:


“The bankruptcy laws were created for a legitimate purpose — when an entity is underwater — but this entity is highly profitable,” said Lesley Clement, a lawyer representing the family of a woman who fell in one of the chain’s facilities, Rosewood Post-Acute Rehab in Carmichael, Calif., and later died. “It’s a strategic defense mechanism to try to get the plaintiffs to go away and not get their day in court,” Ms. Clement said.


Kimmel agrees that filing for bankruptcy in the face of lawsuits is an underhanded strategy, explaining that such actions deny neglected residents the legal recourse that they have a fundamental right to pursue.


“Health care companies that file for bankruptcy when they are still financially secure – simply because they are facing lawsuits – deny individuals who have experienced neglect their legal right to be compensated for their injuries and suffering,” Kimmel says. “On top of that, these situations communicate to other nursing homes and nursing home management companies that they will not be held responsible for the quality of the care they provide, because they can simply file for bankruptcy and have their assets dissected. That is a dangerous precedent that we definitely want to avoid.”

Alarmingly for attorneys like Kimmel, other nursing home management corporations have been implicated in even more transparent schemes to evade lawsuits. A bankruptcy hearing last fall brought the Trans Healthcare chain back into the spotlight eight years after the company made a sale of its assets that some thought was a fraudulent attempt to avoid liability for several wrongful death suits, according to the Chicago Tribune.


Although bankruptcy was also an option, Trans Healthcare was instead sold in a pair of “complex transactions” that the plaintiff’s attorneys believe were intended to funnel the chain’s liabilities into a new entity that had virtually no assets, preventing the plaintiffs from receiving the appropriate awards for their suffering.


For Kimmel, the takeaway is that any attempt by a nursing home management company to avoid accountability for poor care – whether through an early declaration of bankruptcy or another method – stands in direct opposition to the well-being of nursing home residents everywhere.


“It is always a problem when you see serious bars to the legal process,” Kimmel says. “In my work, I’m fighting for people who can feel helpless against these huge corporations. When a nursing home chain uses bankruptcy or another tactic to dodge a threatening lawsuit, it amplifies its already significant advantages over residents, not only by obstructing current cases, but by contributing to an understanding in the industry that legal action is a nonissue – that a facility can get away with poor standards of care.”


As Kimmel suggests, residents are especially vulnerable because of the size of some of these companies, which in many cases own a dozen or more facilities. Fortunately, the pattern of problematic filings seems relatively contained for now, and Kimmel wants to believe that it will stay that way.

“You just have to hope that these tactics don’t catch on,” Kimmel says.


Lawrance Kimmel is an experienced and knowledgeable advocate for nursing home residents and other personal injury victims, most recently negotiating a substantial settlement for a client in a confidential nursing home neglect case. Like many lawyers who represent victims of nursing home neglect, he is motivated both by his desire to help individuals who have suffered from inadequate care and by his belief that he can impact the quality of care nationwide through his work.


At Kimmel, Carter, Roman, Peltz & O’Neill, we believe firmly that all nursing home residents deserve to feel safe and to receive the best treatment and care possible. We are committed to fighting for anyone who has been injured or whose condition has worsened due to nursing home neglect, or for the families of those who have passed away due to improper care.


If you believe that you have suffered from nursing home neglect, contact us or just give us a call at (302) 565-6100 for your free consultation. We offer contingent fee arrangements, so you won’t pay until we win your case.


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