State of confusion

Jamie Masonby Jamie Masonfrom The Deal.com

From coast to coast, rising numbers of hospitals and nursing homes in recent years have filed for bankruptcy because, they say, low Medicaid reimbursement rates are squeezing the life from them.

They may even have a case. From Samaritan Alliance LLC (now UK HealthCare-Good Samaritan Hospital) in Lexington, Ky., to Shreveport Doctors Hospital 2003 Ltd. in Shreveport, La., to Bayonne Medical Center in Bayonne, N.J., care providers say they can't pay staffs or buy food and supplies because state and federal Medicaid dollars don't adequately compensate them.

And then there's Connecticut. The situation is particularly bad in the Nutmeg State, even a little crazy. At 50% of cost, Connecticut's Medicaid reimbursement rate is one of the 12 lowest in the U.S. Affinity Healthcare Management Inc., Marathon Healthcare Group and Haven Eldercare LLC, among others, have all sought bankruptcy within the past 12 months.

---

But Haven's story doesn't end with tight reimbursement rates; there's a lot more to it than that. The state's attorney general, Richard Blumenthal, is now investigating the Middletown, Conn., company and whether former CEO Raymond S. Termini and other unidentified officials diverted Medicaid funds from the nursing home chain for personal use, such as buying a $1.5 million yacht, an $8.9 million record company and homes in Florida and Connecticut.

"Haven is beyond the realm," says the vice president of the Connecticut Association of Health Care Facilities, Toni Fatone. "Marathon and Affinity are standard Chapter 11 filings, with the hope and expectation that they can reorganize. Haven is in a league of its own."

So much so that Blumenthal's probe has created mayhem in the state, which has undertaken a broader regulatory crackdown on operators of such facilities. "The state of Connecticut is trying to micromanage nursing homes," charges Fatone, who's been with the association for 13 years. "This was never a problem before Haven. They have certainly taken a very forceful approach moving forward with nursing homes as a result of the Haven Healthcare situation."

What's particularly confusing is how the state has dealt with Haven itself. Connecticut is investigating the chain now, but it certainly knew plenty about it before Haven's Nov. 20, 2007, bankruptcy filing. "The state was getting calls from vendors for months and months that they weren't getting paid, and the state did nothing," Fatone says. "There were [also] various lawsuits [against Haven] for improper patient care. The problems didn't emerge overnight, and the state of Connecticut had no notice, [but] it had the cost reports and continued to issue the Medicaid rates."

Making the Haven situation fuzzier is that Termini contends his investments in a record studio weren't made with Medicaid money at all, as a series of newspaper articles suggested, and that he has done nothing wrong. And while Haven's bizarre bankruptcy case was dismissed on Aug. 8, the chain's 25 nursing homes in Connecticut, Rhode Island, Massachusetts, Vermont and New Hampshire are now being operated by four different entities, including the state of Connecticut itself.

There are many credibility problems to go around, between Termini and the state. Termini says he profited from Haven's nonregulated operations. Eighty percent of Haven's revenue, however, is derived from Medicaid reimbursements. Haven had to file cost reports on Sept. 30 of every year to the Connecticut Department of Social Services, which identifies every penny spent and what the Medicaid money went for. Yet the state is now trying to figure out what the money bought and whether Termini used it for his personal use.

"There could be criminal charges brought against him eventually," Blumenthal says. "Our focus is to recover any money that was used for personal expenses when it should have been used for maintaining the nursing home facilities or improving patient care."

Things seemed to start souring at Haven in 2005, when, according to an investigative series by the Hartford Courant, the company couldn't even afford to buy heating oil for one of its nursing homes. That August, Termini and his wife, Daneen, bought a home in Palm Bay, Fla., for $650,000, according to a report by John F. McCormick of the Connecticut Department of Social Services' Office of Quality Assurance that was released in November 2007. By December, Termini left others to run Haven while he concentrated on starting the record company.

The McCormick report recounts "substantial transfers of funds from the nursing home operations to personal investments of Raymond and his wife Daneen Termini," including a $5 million transfer into Daneen Termini's checking account, which was used to purchase rental properties owned by Raymond Enterprises LLC and the yacht. Raymond Termini also bought a $650,000 home on Lake Beseck in Middlefield, Conn.

But the report doesn't stop there. It says Termini used $8.9 million to fund the startup of his music recording company, Category 5 Records LLC, as well as $2.12 million to purchase a building in Nashville in December 2006 to house the music label. The building was purchased with a $1.6 million mortgage and $550,000 in cash, the report says.

"Millions of dollars transferred to finance non-healthcare enterprises could have totally paid off all of the vendor payables for the Connecticut facilities," the report notes, concluding that "the siphoning of cash from the healthcare facilities is a major reason for the financial troubles."

But Termini disputes McCormick's findings, arguing that he had a mortgage for the boat and the Category 5 building and used personal assets. He says the home in Florida was acquired two years earlier than the report says and for about $330,000, with part of it mortgaged.

"The allegations are false," he says. "There is an ongoing investigation, but I am confident that I have cooperated fully and at the end of the process I will be vindicated."   Continued...