Health Care

Kansas cracks down on nursing home operators with shaky finances

More nursing homes in Kansas may close

A tight market for nursing homes could mean that others close, if new operators can't be found.
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A tight market for nursing homes could mean that others close, if new operators can't be found.

The state of Kansas had to take over 22 financially struggling nursing homes last year — the most anyone connected to the industry could remember.

Officials with the Kansas Department for Aging and Disability Services said they had no choice. Nursing home managers — most of them from out of state — had fallen behind on bills for basics like food and utilities, putting residents’ health and safety at risk.

Now the Republican-controlled Legislature and Democratic Gov. Laura Kelly have come together on a plan to keep it from happening again.

Lawmakers this month passed a bill requested by the Kelly administration that will require much more financial information from people who apply for licenses to operate nursing homes.

“It gives us a better opportunity to maybe know in advance if somebody coming in is maybe in financial difficulties,” said Rep. Brenda Landwehr, a Wichita Republican who chairs the House Health and Human Services Committee. “It’s never going to solve it (completely) but there should be fewer we have to take over in the future.”

Fifteen of the 22 homes the state had to take over last year were run by Skyline Health, a company owned by a family of investors and headquartered above a pizza parlor in New Jersey.

The Star reported last year that when Kansas issued the 15 licenses to Skyline in 2016, the company was already missing payments to vendors for things like laundry, housekeeping and food for its facilities in other states. According to a lawsuit filed by one of the vendors, Skyline owed almost $2 million when it was granted its Kansas licenses.

At the time, the state required applicants to provide financial statements showing they had enough cash or equity to meet at least one month’s operating expenses, a threshold that an industry expert told The Star was “the bare minimum.”

The new requirements were added to Senate Bill 15, a package of health care legislation that passed almost unanimously.

Under the new law, nursing home applicants must furnish a detailed budget for the first 12 months of operation, which matches Missouri law. They must also document that they have enough working capital to carry out that budget, and they must provide a list of all other nursing homes in the U.S. or abroad where they have ever had an ownership stake.

It also streamlines the legal process for the state to take receivership of nursing homes, which requires a court order.

“The overall purpose of this legislation is to ensure the health, safety, welfare and continuity of care for residents,” said Cara Sloan, a spokeswoman for the state’s aging and disability department.

One of the nursing homes the state took over last year, Fort Scott Manor, had to close, and the court-appointed receiver is still looking for potential buyers for the others.

Meanwhile, the state has turned over operations temporarily to Mission Health, a Florida-based chain that already ran more than a dozen nursing homes in Kansas. The state has subsidized their operations through a civil monetary penalty fund made up of fines paid by nursing homes for poor care.

The new law also makes it easier for the state to seek repayment of those funds from operators like Skyline.

Mitzi McFatrich, the executive director of Kansas Advocates for Better Care, said she thinks the Kelly administration may seek more reforms in the future, but wanted to get a bill passed quickly this spring to address some of the problems that caused last year’s unprecedented situation.

McFatrich, whose group advocates for nursing home residents, said Kansas Attorney General Derek Schmidt is also investigating whether Skyline owner Joseph Schwartz committed fraud.

“He’s been on a conference call with a number of attorney generals from other states that are also impacted on this,” McFatrich said during a recent meeting of her organization. “He said it’s going to take awhile to gather information before he knows if there is enough to pursue a case.”

A spokeswoman for Schmidt said the office “does not confirm or deny the existence of an investigation.”

The new Kansas law will only go so far in preventing future forced takeovers, said Dave Kingsley, a retired statistics professor in the University of Kansas Medical Center’s health policy department who has studied the nursing home industry.

While it may address people like Schwartz, he said, the bigger problem in the industry is small groups of investors that in recent years have been buying up nursing homes, slicing expenses to siphon off profits and then selling them.

“Schwartz was the vulture who came in after the damage was done,” Kingsley said. “The damage was done by private equity firms.”

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Kansas City Star health reporter Andy Marso was part of a Pulitzer Prize-finalist team at The Star and previously won state and regional awards at the Topeka Capital-Journal and Kansas Health Institute News Service. He has written two books, including one about his near-fatal bout with meningitis.