A group of 20 Pennsylvania nursing homes, including three facing $1.2 million in federal fines for deficient care, will have new operators after less than three years in the hands of a nonprofit formed to run them.
The nonprofit, Oak Health & Rehabilitation Centers Inc, headed by Bala Cynwyd lawyer Howard Jaffe, was put into receivership by its landlord in September after failing to make at least three rent payments totaling $10.5 million and missing financial targets.
Jaffe had warned in a June letter to a Formation Capital executive, Oak's landlord and a major player nationally in nursing-home real estate, that Oak was "experiencing extreme financial hardship" and "facing the potential for bankruptcy without a restructuring or an exit strategy to transition to a new operator."
Jaffe did not respond to requests for comment.
Financial woes in the nursing-home industry are not uncommon, as the entire health-care sector pushes to reduce the number and duration of nursing-home stays and expense growth outpaces reimbursement rates.
But Oak is unusual, and its convoluted ownership and management structure illustrates the challenge of figuring out who is accountable for the care provided to vulnerable individuals and who is on the hook financially for fines and unpaid bills.
Oak, a 501(c)(3) tax-exempt organization, was formed in 2014 to take over 22 former Extendicare facilities, including one each in Delaware and West Virginia, in 2015. After that, a Canadian company sold its troubled U.S. operations to a group led by Formation, which is based in Georgia but its president and cochairman is a Philadelphia-area native and Drexel University graduate named Steve Fishman.
Licensed to operate six Philadelphia-area facilities, Oak is part of a set of at least 11 nonprofits. One of them serves as a funnel for millions in cash from older tax-exempt organizations to new entities, including a total of $20 million to Oak. The collection of nonprofits operated 9,673 beds at its peak. That would have ranked in the top 15 nationally if they were counted together, according to a list published last year by Provider magazine.
The nonprofits are connected not just by Jaffe, but also by their use of a similar set of for-profit companies based in adjacent buildings in West Palm Beach, Fla., for back-office support, management, and other services, 990 tax returns show. Those payments totaled at least $89 million in 2015, when the nonprofits in aggregate had $904 million in revenue.
Asked last year about the origins of Oak, Bill Watson, an official who came to the phone at Langhorne Gardens Health & Rehabilitation Center, said: "It's just run by a board and people who wanted to provide quality service for the elderly." Watson provided an email address at one of the Florida companies, Aedos, and was listed as the regional vice president of there on LinkedIn, but did not respond to follow-up questions.
When Formation Capital replaces Oak, it will add to what has been a huge amount of turnover in Pennsylvania nursing-home ownership and management since 2014, when the Archdiocese of Philadelphia sold its seven facilities. In all, about 110 of the state's 700 nursing homes have changed hands in the last three years.
"Pennsylvania's nursing-home industry is undergoing a dramatic change in ownership and unfortunately workers and residents are often on the losing end of these transactions," said Matt Yarnell, president of SEIU Healthcare Pennsylvania.
Jaffe, who in 2015 received a total of $436,313 in pay from three nonprofits, generally keeps out of the spotlight. He drew some attention when in 2014 he convinced The Who's Roger Daltrey to perform a benefit concert at the Kimmel Center for Teen Cancer America.
How Jaffe got involved in nursing-home nonprofits is not clear. Several of the organizations he heads were formed in the 1990s.
The 990s show that in the 2010-11 time frame Jaffe succeeded Harry D. Madonna, a veteran Philadelphia attorney and chief executive of Republic First Bancorp Inc., as the principal officer at several of the nonprofits. Both used the same business address in Bala Cynwyd. Madonna did not respond to requests for comment. Acquaintances of Madonna have mentioned casually that he has a nursing-home business and that his daughter and son are running it.
Oak is not the first of Jaffe's nonprofits to run a group of nursing homes for a short period of time.
In mid-2014, Chestnut Health & Rehabilitation Group Inc. started managing 14 former Kindred Healthcare sites, mostly in Massachusetts and Connecticut. A real estate investment trust owned the real estate.
Frontline Senior Care Inc., the same nonprofit that gave Oak $20 million in start-up money, provided $10.1 million to Chestnut Health. Frontline had received $32.1 million in contributions from Jaffe's other nonprofits in 2015 and 2016.
Despite the financial boost from Frontline, Chestnut Health was out of the picture by early 2016, as the facilities, including the real estate, were sold.
What happened next does not bode well for vendors owed money by Oak.
Chestnut left unpaid bills behind, among them $670,156 for therapy services, according to a March lawsuit in the Superior Court of Delaware. The therapy provider, Encore Preakness Inc., has so far been unsuccessful in demanding payment from two Florida companies that had a part in managing the Chestnut facilities, one of which handled the money.
Lawyers for Debra Howe, cited in the Encore lawsuit as the "owner and/or managing member" of two companies that provided services to Chestnut, asserted in a motion to dismiss that Encore's agreements were with Chestnut, not with Kane Financial Services LLC or Airamid Health Services LLC. Therefore, Encore had no business going after Kane and Airamid for payment, the motion said.
Reached at home in Florida, Howe, who was copied on Jaffe's June letter to Formation Capital, said she was not the right person to explain how all the pieces surrounding Jaffe fit together.
Oak's receiver, the official overseeing the facilities until new operators can be found and licensed, has already put vendors on notice that they might not be paid for goods and services provided before Sept. 25, when a Montgomery County judge approved the receivership, a state-court alternative to bankruptcy.
Despite the receivership, Jaffe and an official at Kane Financial remained the individuals allowed to pay bills on Oak's behalf and have made $1.24 million in unauthorized payments for pre-receivership bills between Sept. 25 and Oct. 13, according to the receiver's Nov. 27 report to court.
Among the Oak bills Jaffe did not pay are the federal fines at three Oak nursing homes, including Elkins Crest and Suburban Woods in the Philadelphia area.
Big Fines at Oak Health & Rehabilitation Centers Inc.
In a default notice, Oak's accounts receivable lender, Pacific Western Bank, of Chevy Chase, Md., disclosed large federal fines at three of the nonprofit's facilities. In addition to the fines below, five Oak facilities were denied payment for new admissions.
Elkins Crest Health and Rehabilitation Center, Elkins Park
Federal fine: $588,777 (plus $16,500 in state fines)
Inspection results: In September 2016, a male patient went into a female patient's room and punched her in the face and chest. "It was like a brick hitting me," the victim told state investigators. "I was screaming ... I have nightmares ... I don't sleep well." Elkin Crest's director of nursing acknowledged that the attacker, who also had the habit of taking his clothes off in other patients' rooms, had had five previous documented physical altercations with other residents since February 2016.
Mountain Laurel Nursing & Rehabilitation Center, Clearfield
Federal fine: $379,022 (plus $20,350 in state fines).
Inspection results: A September 2016 inspection report said a resident with Alzheimer's disease, and known to be an elopement risk, had to have two fingers amputated after getting them caught in a door during an escape attempt. The patient's care plan called for her to be redirected away from exits. A therapist failed to do that, claiming he did not know of the plan. In another case, the facility failed to provide fall mats on both sides of a patient's bed, as required by the patient's care plan. The patient fell out of bed and suffered a right-hip fracture.
Suburban Woods Health & Rehabilitation Center, East Norriton
Federal fine: $252,309 (plus $37,500 in state fines)
Inspection results: A November 2016 inspection report detailed six individual cases of serious deficiencies. It was cited for, among other things, not sharing patients' individual-care plans with its nursing staff. As a result, a patient who suffers from incontinence, fell out of bed while being cleaned by a single nursing assistant, instead of two, as required by the patient's care plan. A leg injury requiring 16 stitches. The facility failed to properly document a resident's allegation of a rape by an aid. Nine alert and oriented residents complained that the food was terrible, "like dog food."
Tremont Health & Rehabilitation Center, Tremont
Federal fine: $3,100 per day in connection with a Sept. 2016 survey (plus a $1,500 state penalty). The federal fine was reduced to $1.991 because Tremont agreed not to appeal.
Notable inspection results: A residential fell out of bed while being bathed and suffered a broken left hip.
SOURCES: Pacific Western Bank and Pa. Department of Health