Feds sued Cheltenham Nursing & Rehab for years of ‘grossly substandard’ care

Federal nursing home regulators fined Cheltenham Nursing & Rehabilitation Center in Philadelphia $824,213 for failures connected to the June 2018 suicide of an elderly patient at the East Olney facility. It was the second-largest fine against a U.S. nursing home in 2018.

Cheltenham and its parent company, an Ohio nonprofit called the American Health Foundation Inc. (AHF) haven’t paid that fine, a Centers for Medicare & Medicaid Services spokesperson said.

The agency is still trying to collect the money.

Now, the U.S. Justice Department is also going after Cheltenham and two affiliated nursing homes in Ohio for even bigger stakes with a False Claims Act lawsuit, filed June 14 in Philadelphia. The suit alleges that staff neglected patients for years and allowed them to live in a pest-infested building while AHF, which collected millions in management fees from Cheltenham, applied relentless pressure to cut nursing costs.

In addition, the Justice Department accused Cheltenham of failing to provide needed psychiatric care — contributing to the 2018 suicide — and giving residents unnecessary antibiotic and anti-psychotic medications, failing to protect residents’ belongings, and subjecting residents to verbal abuse.

“This is a really bad place,” said Toby Edelman, senior policy attorney in the Washington office of the nonprofit Center for Medicare Advocacy. “I couldn’t read it. I started getting so agitated,” Edelman said of the 144-page civil complaint.

Edelman and other advocates for the elderly said the lawsuit points to a systemic failure in the nursing-home regulatory system, given that Cheltenham — long known as a troubled facility — has been allowed to continue providing poor care for so long, but they also said they were heartened that the Justice Department was pursuing AHF though its Elder Justice Initiative.

“It’s about time,” said Sam Brooks, who used to work in Community Legal Services of Philadelphia’s Aging and Disabilities Unit and now is policy director for the National Consumer Voice for Quality Long-Term Care, a Washington nonprofit. He said the Justice Department lawsuit covers problems he complained to state inspectors about years ago.

The Justice Department did not answer questions from The Inquirer, such as whether Cheltenham, with 255 beds, had improved its care since the period covered in the lawsuit. The lawsuit does not specify how much money the government is seeking. During the fiscal years 2016 through 2018, Cheltenham received more than $45 million from Medicaid and $9 million from Medicare, state financial reports show.

J. Michael Haemmerle, who is listed as Cheltenham’s administrator on its latest Medicaid cost report to Pennsylvania and as an AHF board member on that organization’s latest 990 tax return, said AHF is proud of the care provided at its facilities.

“American Health Foundation denies the allegations made by the Department of Justice and will defend this matter vigorously,” Haemmerle, whose LinkedIn profile says he is president of Dublin, Ohio-based Abbington Assisted Living, wrote in an email.

As part of its argument that AHF managers in Ohio were negligent, Justice officials highlighted the $3.6 million Cheltenham paid to two AHF entities — AHF Management and AHF Home Office — from 2016 through 2018.

During that period, Cheltenham had a total net loss of $2.27 million, according to records available at SNFData.com, which compiles financial information from federal nursing home cost reports. “But for the fees AHF imposed on the nursing home, Cheltenham would not have suffered losses,” the complaint said.

Advocates have been urging federal and state governments to make it easier to track the amounts of money nursing homes are paying to affiliates to get a better picture of the industry’s financial condition. They saw the AHF complaint as a sign that that approach is taking hold.

Federal tax returns for AHF and affiliates show that AHF and other nonprofit affiliates paid $3.6 million to J. Michael Haemmerle and other executives and board members from 2016 through 2018, The Inquirer found. Other executives and directors are Haemmerle’s father and uncle. The president of AHF Management is Suzanne Lehman. Her husband is on the AHF boards, and their son also works for the company.

AHF’s other nursing homes, including one in Southwestern Pennsylvania, also paid fees to AHF.

The Haemmerle and Lehman families, both with long histories in senior care, are not related, J. Michael Haemmerle said. The two families formed AHF in 1988 and by 1996 had acquired 16 nursing homes and and three assisted living facilities through 10 nonprofit holding companies — many of them subsequently lost to foreclosure or bankruptcy, according to a 2006 bond offering statement.

AHF bought Cheltenham in 1990 for $9.5 million.

In recent years, the nonprofit AHF has kept Cheltenham under tight financial control while building reserves of $16.5 million as of December 2017, with plans to invest $11 million of it, according to the complaint.

“Yet rather than reduce or restructure their management fees, AHF Management regularly pressed Cheltenham’s facility management to cut costs and simultaneously increase the number of residents in the building,” the complaint said.

More recent comparable data on cash reserves were not available, but Cheltenham’s federal cost report for the year ended June 30, 2019, shows that the facility had enough cash on hand to keep funding the business for 174 days without new revenue. That compares with a statewide median of 28 days that year, according to a Pennsylvania Department of Health report.

Quoting communications between local Cheltenham managers and executives in Ohio, the complaint argues that “AHF and AHF Management were typically more focused on Cheltenham’s financial health than the actual health of Cheltenham’s residents.”

An AHF manager urged Cheltenham’s then-administrator to accept fewer “Walkie Talkie” patients — meaning those who can walk and talk — as a way to get better Medicaid rates, even though the facility was already short-staffed.

Unlike many False Claims cases, the case against AHF is not focused on traditional over-billing. Rather, the government sued AHF to recover money paid for “nonexistent or grossly substandard services,” sometimes also called “worthless services.”

The worthless services approach to enforcement against nursing homes originated in the mid-1990s in Philadelphia, when David R. Hoffman, then an assistant U.S. Attorney here, sued the manager of Tucker House, a North Philadelphia nursing home, for taking Medicare and Medicaid money but not providing adequate nutrition and wound care to three bed-bound residents.

Quantifying the financial harm to government is not easy in such cases, Hoffman said.

As examples of the problems at the AHF facilities, the lawsuit includes a list of 104 alleged false claims for 13 patients, nine of them from Cheltenham. Cheltenham accounted for $403,096, or 85%, of the $473,732 total in alleged false claims. Over the period covered by the lawsuit, the AHF facilities made 10,000 claims on Medicaid and Medicare, the complaint said.

“Is it just these individuals or is it every dollar that they got during the relevant time frame?” That’s a key question in a case like this, Hoffman said.

If the government wins its case, AHF could have to pay back triple the amount it received from Medicaid and Medicare for “grossly substandard or nonexistent services,” and also pay fines that range from $12,537 to $25,076 for each violation.

The overarching question is this, according to Hoffman: “Are they entitled to dollars when they are knowingly neglecting people?” To him, the answer is obvious.