After a hospital stay in 2016 for a brain tumor, Regina Romero was transferred to a nursing home in New Mexico. Her “medications were withheld” and she was neglected and “subjected to an assault,” her family alleges in a wrongful death lawsuit filed in 2017 against the facility, Paloma Blanca Health and Rehabilitation.
Romero died less than four months after arriving at the home; she was only 59 years old, states the complaint, which doesn’t detail the allegations.
In March 2021, the case was nearing a settlement when negotiations suddenly halted.
That month, a unit of Consulate Health Care — which owned 140 nursing homes, including Paloma Blanca — filed for Chapter 11 bankruptcy protections. Romero’s stepdaughter said Consulate attorneys leveraged the pending bankruptcy as a bludgeon: either accept a significantly reduced settlement, or risk getting little or nothing from a bankrupt entity. The family begrudgingly took the much smaller offer, an amount that cannot be disclosed under the settlement terms.
“It’s horrible because I think they got away with what they did,” said the stepdaughter, Lisa Robichaud, who had moved near Romero when she entered Paloma Blanca. The two women had bonded over cooking together and grown closer when Robichaud’s father had been diagnosed with colon cancer — and Romero cared for him before his death. “She was really good to him,” Robichaud said in an interview.
Romero’s family is one of many who faced similar hardball tactics, plaintiffs’ lawyers said. In the six-year run-up to the bankruptcy filing of six Consulate affiliates, at least 137 plaintiffs across a half-dozen states had sued the affiliates on allegations ranging from negligence and wrongful death to Medicare fraud, according to an online search of legal databases; many cases were settled and the outcome of others was unclear.
A STAT investigation found that in many of these cases, lawyers for Consulate affiliates leveraged the threat of bankruptcy in seeking to lower settlements, and that the companies’ actions fit a larger pattern. Before bankruptcy, the company used a convoluted corporate structure that stymied litigation, including dividing up ownership of its nursing homes and keeping paltry liability insurance. Taken together, Consulate left families like the Romeros with little chance of recourse for alleged wrongdoing.
Such tactics, while legal, have prompted calls for holding nursing home chains more accountable, and the Biden administration has announced it will take steps to make homes’ ownership and finances more transparent. Nursing home watchdogs say the Consulate affiliates’ bankruptcy case set a troubling precedent. When a company files for bankruptcy, all ongoing legal actions are frozen and plaintiffs must seek relief from the bankruptcy court. Under the bankruptcy order, which was approved last December, unsecured creditors, including the families with pending legal actions, are expected to recover only 0.7 percent of their claims.
Charlene Harrington, professor emeritus of social and behavioral sciences at the University of California, San Francisco, said Consulate’s bankruptcy strategy and its corporate structure have proven successful in protecting itself from legal responsibility.
“If it was just a tiny nursing home chain in Indiana no one would care,” said Harrington, who specializes in the nursing home industry. But Consulate was the sixth largest nursing home chain at the time of the bankruptcy declaration. “Other companies will look at how they managed bankruptcy to get out from under it.”
“Other companies will look at how they managed bankruptcy to get out from under it.”
Charlene Harrington, University of California, San Francisco
Consulate and Synergy Health Care Services, a nursing home management company employing many of Consulate’s past executives, did not respond to phone calls and emails requesting comment. Nor did Formation Capital, the private equity firm that owns Consulate.
Paloma Blanca denied the Romero family’s allegations, court documents show. “If the plaintiff was injured and damaged as alleged, which is specifically denied, the injuries and damages resulted from an unavoidable medical complication,” states the home’s reply to the complaint. Other Consulate affiliates named in the lawsuit denied the allegations or argued they have nothing to do with the case.
In a bankruptcy declaration, Consulate cited financial hardship from the pandemic as the reason for seeking protection from creditors. With fewer intakes, the number of people in its care dropped from 14,000 to 12,000.
The company also said it was unable to pay a $258 million judgment levied in 2020 against the company. The judgment was the result of a federal whistleblower complaint filed in 2011 by Angela Ruckh, a former charge nurse at the chain’s Florida nursing homes, who alleged that Consulate defrauded taxpayers by overbilling government programs.
Last December, Judge John Dorsey approved a bankruptcy order that reduced the $258 million judgement to $4.5 million.
Echoing the ultimatum Robichaud faced, lawyer Nathan Carter said that leading up to the affiliates’ Chapter 11 filings, Consulate attorneys cited the whistleblower judgment and the potential for bankruptcy in arguing for lower plaintiff payouts in dozens of lawsuits represented by his Florida-based firm.
Carter, who declined to discuss specific cases or settlements, said Consulate used the tactic to a much greater extent than other nursing home chains that have considered or filed for bankruptcy. His assessment was based on his experience and conversations with other Florida law firms.
“They definitely played the bankruptcy card harder than other chains,” Carter said.
In pursuing litigation against Consulate, families and their attorneys faced a maze of related businesses that obscured where profits went, government cost reports show. The company’s many subsidiaries became a recurring theme in the bankruptcy.
The bankrupt entities — which had a stake in Consulate’s nursing homes — were sold to a company made up of Consulate insiders, called CPSTN Operations, in what’s known as a stalking-horse bid.
Early in the bankruptcy proceedings, a creditor committee argued that Consulate used the stalking-horse bid to avoid litigation while pleading poverty in isolation from the larger corporate structure. Consulate placed six affiliates in bankruptcy, but not itself or its private equity owner.
The bankruptcy will “do nothing more than allow Consulate to cleanse or launder a continually evolving corporate, capital, transactional and governance structure much larger than the now isolated debtors,” stated the creditor filing. Attorneys representing CPSTN did not return emails seeking comment.
The committee later sought to examine why a bankrupt Consulate management company transferred $1.6 billion to a parent entity in 2020. The motion was later withdrawn for unclear reasons, court records show. Robert Schechter, an attorney who represented the creditors committee in the bankruptcy, declined to comment on the withdrawn motion. But overall, he said the committee struck a balance between creditor recovery and the risk of a drawn-out bankruptcy that potentially affects the care of nursing home residents.
“For any business that’s in the zone of insolvency, there’s a potential big change happening, whether it’s the purchase of the homes or maybe a new operator. Those are things that affect residents,” Schechter said.
Robert Lawless, a professor at the University of Illinois College of Law who specializes in bankruptcy law and has no ties to the case, said Consulate’s size and byzantine ownership structure likely imperiled the committee’s attempts to probe the conglomerate’s finances.
Lawless urged stricter federal limits on the ability of nursing home chains to divide ownership — and adoption of a rule that to be eligible for Medicare funding, companies in a wider corporate structure be liable for each other.
“You can’t blame the bankruptcy court,” said Lawless. “The law should be different.”
Arnold Whitman – the chairman of Formation Capital, the private equity firm behind Consulate – told The New York Times in 2007 that chopping up nursing home ownership into separate companies is a crucial legal maneuver that rehabilitated a struggling industry. He did not respond to emails requesting comment.
Formation has also held a majority stake in Trident USA Health Services, a diagnostics provider that the Justice Department accused in 2019 of filing for bankruptcy protection to “extinguish the government’s ability to collect any damages or penalties.” Ultimately, Trident in 2019 agreed to pay the federal government $8.5 million to resolve claims that it provided kickbacks to nursing homes in exchange for referring lucrative business to Trident.
Because Consulate is a privately held company, its financial health remains shrouded. But according to the bankruptcy filings, Consulate paid then-CEO Christopher Bryson $2.004 million in bonuses eight months before bankruptcy — nearly one-third of which came days before the declaration. The bonuses were on top of $1.062 million in salary during the period.
More visible was that Consulate and the Department of Justice agreed to reduce the whistleblower judgement in the Florida nursing home case to just $4.5 million. The Department of Justice declined to comment.
Toby Edelman, a senior policy attorney for the Center for Medicare Advocacy, said the steeply reduced settlement amount undermines whistleblower litigation under what’s known as the False Claims Act.
“That’s a message to other chains that are charged with violations of the False Claims Act,” Edelman said. “They can take their chances in court and if they lose, try to settle for far less.”
Aretha Bradham is one of the plaintiffs whose suit against Consulate affiliates remains unresolved. She faces the likelihood of recovering little.
A bike accident in 2017 paralyzed her brother, Thomas Bradham, from the neck down. After a hospital stay, he was transferred to Marshall Health and Rehabilitation Center. At the Florida nursing home, his health declined rapidly.
He developed severe bed sores and suffered from malnutrition, and ultimately died from negligence, alleges her 2020 lawsuit against Consulate subsidiaries. Bradham seeks damages for the alleged fatal neglect.
“Normally you say in bankruptcy you get pennies on the dollar,” said her attorney, Morgan Streetman. “This is not even expected to be one penny on the dollar.”
As another means of recovery, Streetman is pursuing the facility’s liability insurance policy that’s supposed to cover when someone is injured on the premises. A copy has yet to be provided to him, he said.
But draft financials obtained through a records request to a Virginia health regulator state that Consulate facilities’ insurance covers only $100,000 per negligent incident in Florida — and that can amount to little or nothing after legal fees. Consulate’s insurance often deducts attorneys’ fees from the payout.
Each Florida home carries $300,000 in total liability coverage, the records show. Consulate’s skimpy liability insurance is widely known and deters litigation, attorneys say.
Florida law requires that nursing homes carry liability insurance but doesn’t specify a minimum. In 2018, state legislation sought to require that nursing homes maintain liability insurance covering $2 million per incident, with $4 million in total coverage. The bill failed.
“Normally you say in bankruptcy you get pennies on the dollar. This is not even expected to be one penny on the dollar.”
Morgan Streetman, Bradham family’s attorney
Bradham’s lawsuit against Marshall Health and Rehabilitation Center names fives LLCs that it alleges make up “an amalgamation of interests creating a blurred corporate identify.”
Attempting to pierce the corporate veil, Bradham’s attorneys negotiated the ability to pursue litigation against Consulate entities that didn’t declare bankruptcy. But that’s an uphill battle. “Those third parties will no doubt assert all kinds of legal defenses,” wrote bankruptcy attorney Benjamin Keck in an email.
Meanwhile, Bradham presses on in memory of her older brother, a concrete finisher who died at 58 years old. He expressed love by fixing up her house, while she baked for him. He was easy to talk to, whatever the subject. “We had a special bond,” she said.
In response to the Bradham lawsuit, three Consulate affiliates filed a motion to dismiss the complaint, pointing to a 2014 Florida law that shields “passive investors” from being named as defendants in nursing home negligence lawsuits.
“None of the entities provided any direct care to Thomas Bradham,” states the response from Epsilon Health Care Properties, Consulate Management Company, and LV CHC Holdings.
Two other affiliates, 207 Marshall Drive Operations and CMC II, denied the allegations. “Thomas Bradham’s injuries, if any, were the result of pre-existing or congenital problems or conditions and not caused by, exacerbated, nor aggravated by any actions or omissions on the part of defendants,” states the response.
The Romero family’s attorneys, too, were frustrated by the complicated corporate structure, writing in a court filing that they were “forced to try to untangle the everchanging web of companies and entities.”
Lawyers for Paloma Blanca, a 119-bed facility that advertises care for medically complex patients, disputed Consulate’s role in the nursing home’s operations when plaintiff attorney Wesley Jackson moved to include other corporate entities in the Romero family’s lawsuit. The Romero family’s lawsuit ultimately named 16 LLCs under the umbrella of Consulate.
Much of the same team that ran Consulate nursing homes before the bankruptcy still runs them. The nursing homes in April 2022 shared 45 percent of the same officers and managers as the month before bankruptcy. That’s according to a STAT analysis of federal ownership data for 133 Consulate nursing homes, with a few homes omitted because of incomplete data.
The most common name that popped up in the STAT analysis was Kenneth Ussery, who was listed on more than 120 of the nursing homes before and after the bankruptcy. He was Consulate’s senior vice president of revenue cycle and treasury management, before holding the same title at Synergy Healthcare Services, a nursing home management company that launched in December with former Consulate executives.
Among Synergy’s clients: Consulate Health Care.
This story was produced with the support of Freelance Investigative Reporters and Editors (FIRE). The late Wallace Roberts contributed reporting and Ben Arnoldy and Brandon Meyer contributed data reporting.
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