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DJ Covid-Hit Nursing Homes Load Up on Debt -- -2-

· 02/04/2021 15:49

regulations is harming the skilled nursing industry."

Facilities controlled by Rechnitz "shouldn't get a single loan" backed by HUD, says Ernest Tosh, a Dallas attorney specializing in nursing-home abuse and neglect cases. Relying on lenders to vet facilities' regulatory track record is "asking the fox to guard the hen house," he says, because with HUD shouldering the default risk, it isn't in the lenders' economic interest to turn away borrowers.

In response to questions about Brius' track record and the Section 232 loans, Mark Johnson of Hooper, Lundy & Bookman, Brius' regulatory counsel, forwarded a Jan. 1 email from the Los Angeles County Department of Public Health thanking Rechnitz for opening Covid-designated facilities and "committing to take many patients in a time of great need." Regarding the HUD-backed loans, Johnson said, "since the day the loans were approved there has not been one payment on one facility that was a single day late." First American Capital Group of Great Neck, NY, the lender on all 11 of the 2017 loans, didn't respond to requests for comment.

Although lenders must review the track record of all facilities owned or operated by a prospective borrower, operators that rank among the worst in the nation on certain care-quality measures have obtained a string of recent loans. Thirty-six nursing homes operate under the Aperion Care name in Illinois and Indiana, and six of them rank among the bottom 100 nursing homes nationwide in terms of total nurse staffing hours per resident day, according to CMS data. The chain's West Chicago facility has the lowest staffing, by this measure, out of more than 15,000 nursing homes nationwide, with 1.5 total nurse staffing hours per resident day, whereas the federal government's recommended level is 4.1 hours. Another seven Aperion Care facilities are in the Special Focus program or on the candidate list, which bars entry into the Section 232 program, and an eighth recently shut down after 19 months in the program. Only about 3% of nursing homes nationwide have a special focus designation. But five Aperion Care facilities got HUD-backed loans in 2019 and 2020, totaling more than $37 million.

Aperion has taken over some troubled facilities and attempts to turn them around, but "it's not like there's a magic wand," says Fred Frankel, the company's general counsel. The facilities that rank poorly in the CMS staffing data meet state requirements for nursing hours, he says, and mainly house lower-acuity patients that require less staffing. The HUD loans offer "a sense of security," he says. "We're not worried that every two years we're refinancing."

Defaults in the Section 232 program remain low but have grown in recent years. As of January, 66 loans with a total unpaid principal balance of $566 million were in default, according to HUD, up from 55 defaulted loans with a total $446 million unpaid principal balance in March 2019.

Some long-term care facility owners and administrators have siphoned cash from the facilities while defaulting on their HUD-backed loans. Antonio Otero, former administrator of Magnolia Alzheimer's Assisted Living in Texarkana, Tex., pleaded guilty in 2019 to skimming equity from the facility, which had defaulted on its Section 232 loan, diverting the cash to buy $1,540 worth of Dallas Cowboys tickets, $2,520 in landscaping for his personal residence, and a $3,247 watch, among other expenses, according to the Justice Department. Otero was sentenced last year to 46 months in federal prison and ordered to pay $2 million in restitution to HUD.

HUD occasionally sells off to investors Section 232 loans that have turned sour. It sold the Magnolia loan, for example, for 60% of the unpaid principal balance. But in many other cases, it gets just pennies on the dollar. HUD initially insured a $9.2 million loan for Birmingham Health Care, a nursing home in Derby, CT, in 2005, according to the department. The facility's operator, Spectrum Health Care, declared bankruptcy in 2012, and Birmingham got a $8.95 million refinance through Section 232 in 2013. That was part of a workout effort that reduced debt service and "imposed numerous special conditions," HUD says. But Spectrum declared bankruptcy again in 2016, and HUD ultimately sold the Birmingham loan, which had an unpaid principal balance of $8.35 million, for $125,000. Spectrum executives didn't respond to requests for comment.

Read: The Crisis Raging Inside America's Nursing Homes

(END) Dow Jones Newswires

February 04, 2021 15:49 ET (20:49 GMT)

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