Nursing home magnate Floyd A. Schlossberg had to be happy with the Department of Housing and Urban Development on March 30, 2012.
Nursing home residents and the American taxpayer, perhaps, not so much.
It was on that day that Cambridge Realty Capital gave initial approval to a mortgage application for $12 million for the Alden Alma Nelson Manor nursing home in Rockford, Illinois.
The Department of Housing and Urban Development (HUD) insured the loan through a little-known federal program started in 1959.
The single-story facility that sits on a tree-lined street was recently renamed Alden Debes. It is one of dozens of nursing homes the sturdy, bespectacled Schlossberg has come to own since starting out in the industry in the 1970s.
A refinance, the $12 million loan had an interest rate of just 3.63 percent — close to the average rate for participants in the HUD program and nearly 2 percentage points less than the rate Cambridge had granted Alden Alma Nelson Manor in 2004 for a similar HUD-backed mortgage.
But a lot had happened at the home in the years between the two loans.
For one thing, the state fined the facility a total of $145,000 for its role in three residents’ deaths. It is unclear from publicly available records whether those fines were reduced on appeal.
In addition, Alden Alma Nelson Manor earned the lowest possible overall quality rating — a one star on a five-star scale — from the federal Department of Health and Human Services (HHS) in 2009. The overall quality mark is determined by rankings on health inspections, staffing levels and metrics like the percent of high risk residents with pressure ulcers. A one-star rating, HHS says, indicates that the care provided is “much below average,” in the bottom 20 percent within a particular state. The score for the Rockford home remained unchanged for seven consecutive reporting cycles into 2011, one of relatively few in the country to retain such a low ranking for that long, according to a 2012 analysis by USA Today.
Nevertheless, Cambridge Realty granted that mortgage refinance.
And HUD guaranteed it.
Business as usual
An unusual situation? Not really. Nursing homes providing poor care routinely have received HUD-insured acquisition, construction, refinancing and improvement loans all over the country. In fact, since 2001 hundreds of the nation's worst-ranked nursing homes have received one, and in many cases two, low-cost, HUD-backed mortgages worth close to $2.5 billion, according to the Center for Public Integrity’s analysis of loan and ratings data.
Even though HUD restructured the office that runs the program in 2008 to streamline the mortgage application process and requires submission of the latest quality reports in evaluating potential construction and rehabilitation loans, the number and volume of one-star facilities that got HUD insurance rose each year from 2009 to 2012. Almost two decades of stinging government reports about the program — from the Government Accountability Office and HUD’s Office of the Inspector General — don’t seem to have made much difference.
HUD spokesman Brian Sullivan wrote in an email that the average overall quality rating of newly-insured skilled nursing facilities has improved every year since 2011, and Dr. David Gifford, senior vice president of quality and regulatory affairs at the American Health Care Association, the leading for-profit nursing home advocacy organization, pointed to the higher percentages of all skilled nursing facilities that have earned the top score, a five-star rating, from the federal government from 2009 to 2013.
But U.S.Jan Schakowsky, D-Ill., a leading legislator on senior issues, called the findings “outrageous.” And Charlene Harrington, an emeritus nursing professor from the University of California at San Francisco, says that the insurance pattern raises serious questions about the allocation of public resources, communication between agencies and what she called a shocking lack of supervision.
“There’s no public scrutiny, no oversight, no coordination,” said Harrington, who contracted with HUD to look at market data for the mortgage program for five years last decade. HUD, she said, is an “agency running amok and it’s been that way since it’s started.”