Lauren Stevens of Durham, N.C., an attorney for a major pharmaceutical company was charged with obstruction and making false statements  She was charged with one count of obstructing an official proceeding, one count of concealing and falsifying documents to influence a federal agency, and four counts of making false statements to the Food and Drug Administration (FDA).

The indictment states that in October 2002, the FDA asked for information about the company’s promotion of a prescription drug, as part of an inquiry into whether the drug was being promoted for uses that had not been approved by the FDA. Data demonstrating a drug’s safety and efficacy for a particular use is required for FDA approval. Federal law prohibits the marketing or promotion of drugs for unapproved – or "off-label" – uses.

The indictment alleges that, in response to the FDA’s inquiry, Stevens signed and sent a series of letters from the company to the FDA that falsely denied that the company had promoted the drug for off-label uses, even though she knew, among other things, that the company had sponsored numerous programs where the drug was promoted for unapproved uses. The indictment alleges that Stevens knew that the company had paid numerous physicians to give promotional talks to other physicians that included information about unapproved uses of the drug. According to the indictment, the company paid one such physician to speak at 511 promotional events in 2001-2002 and another physician to speak at 488 such events during that time period.
The indictment also alleges that Stevens did not provide the FDA with slide sets used by the physicians who were paid by the company to promote the drug, even though the FDA had asked for the slide sets and Stevens had previously promised to obtain and provide the FDA with such materials. The indictment alleges that a memorandum was prepared for Stevens that set forth the "pros" and "cons" of producing the slide sets to the FDA. One of the "cons" was that the slide sets would provide "incriminating evidence about potential off-label promotion of [the drug] that may be used against [the company] in this or in a future investigation." Instead of providing the requested slide sets to the government, Stevens represented that the company’s responses to the FDA’s requests was "final" and "complete."

" This indictment demonstrates that those who purposely subvert the regulatory functions of the FDA through false statements and misleading information will be held accountable for their deception," stated Dara Corrigan, FDA’s Associate Commissioner for Regulatory Affairs.

Each of the obstruction charges carries a maximum penalty of 20 years in prison. Each of the false statement counts carry a maximum penalty of five years in prison. 

Fierce Healthcare reported Kindred’s Third Quarter Profits. Kindred Healthcare, Inc. (the "Company") announced its operating results for the third quarter ended September 30, 2010.


Consolidated revenues for the quarter totaled $1.0 billion, approximately the same as a year ago.  Diluted earnings per share were $0.13 compared to last year’s $0.14.   Hospital operating income was in line with expectations despite soft volumes.   Nursing and rehabilitation center admissions grew 9% in the third quarter compared to last year.   Peoplefirst Rehabilitation operating income rose 30% from the third quarter last year.

Overall results for the quarter benefited from effective cost controls across the organization.   Current quarter includes previously announced tax benefit of $0.07 per diluted share.   Transaction costs in the current quarter reduced earnings per diluted share by $0.01.   Operating cash flows grew 18% to $68 million in the third quarter compared to last year.  Company announces cluster market acquisitions in each of its three operating divisions.   Company completed the acquisition of five long-term acute care ("LTAC") hospitals for $178 million in cash in its southern California cluster market. 

Company acquired three owned nursing and rehabilitation centers for $38 million in cash in its Dallas-Fort Worth cluster market Company announced a definitive agreement to acquire a home health company in its Ohio cluster market

Continuing Operations

Consolidated revenues for the third quarter ended September 30, 2010 totaled $1.0 billion, approximately the same as last year’s third quarter. Income from continuing operations for the third quarter of 2010 totaled $5.1 million or $0.13 per diluted share compared to $5.4 million or $0.14 per diluted share in the third quarter last year.

Third quarter 2010 operating results included pretax charges related to transaction costs of $0.8 million ($0.5 million net of income taxes or $0.01 per diluted share).

As expected, the Company recorded a $2.9 million or $0.07 per diluted share favorable income tax adjustment in the third quarter of 2010. This adjustment was included in the Company’s previously issued third quarter earnings guidance.

Operating results for the third quarter of 2009 included a favorable income tax adjustment that increased net income by $1.7 million or $0.04 per diluted share.

For the nine months ended September 30, 2010, consolidated revenues increased 1% to $3.2 billion compared to the first nine months of 2009. Income from continuing operations totaled $36.4 million or $0.92 per diluted share for the first nine months of 2010 compared to $46.3 million or $1.18 per diluted share in the same period a year ago.

Consolidated operating results for the first nine months of 2010 included certain items that, in the aggregate, reduced net income by approximately $0.4 million or $0.01 per diluted share.

Management Commentary

Paul J. Diaz, President and Chief Executive Officer of the Company, remarked, "We are pleased to report good third quarter results. Our nursing and rehabilitation center admissions growth was solid and we generally did a good job of controlling our costs in each of our divisions. Peoplefirst Rehabilitation reported 30% growth in operating income and signed 54 net additional unaffiliated contracts during the quarter. However, the softness in hospital admissions, as well as reimbursement pressures in both our hospitals and nursing centers, negatively impacted otherwise strong operating results."

Commenting on the Company’s cash flows, Mr. Diaz noted, "We continue to generate strong operating cash flows for investment and other capital uses to create value for our shareholders. Operating cash flows grew 18% to $68 million in the third quarter and 6% to $151 million for the first nine months of 2010 compared to last year. Likewise, free cash flows, defined as operating cash flows less routine capital spending, grew 13% to $39 million in the third quarter and 21% to $82 million for the first nine months of this year compared to a year ago. We believe that our operating cash flows will fund substantially all of our routine and development capital spending in 2010."

Mr. Diaz further commented, "Our development and acquisition efforts over the past several years have added a substantial number of successful new sites of service in our cluster markets, many of which have included owned real estate. While a number of our development projects have not yet reached stabilization, we now operate 40 owned facilities that have provided, after the allocation of corporate overhead, approximately $62 million or 30% of our consolidated income before interest, income taxes, depreciation and amortization (‘EBITDA’) over the past twelve months. Prudent investment of our free cash flows and unused borrowing capacity in owned real estate is one of several growth strategies that should further position us to enhance shareholder value in the future."

Earnings Guidance — Continuing Operations

The Company raised its 2010 earnings guidance for continuing operations. The Company expects consolidated revenues for 2010 to approximate $4.3 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $569 million to $574 million. Rent expense is expected to approximate $358 million, while depreciation, amortization and net interest expense are expected to approximate $129 million. Income from continuing operations for 2010 is expected to approximate $51 million to $54 million or $1.30 to $1.35 per diluted share (based upon diluted shares of 38.9 million).

The Company also provided its earnings outlook for the fourth quarter of 2010, estimating diluted earnings per share between $0.38 to $0.43 (based upon diluted shares of 38.9 million).

With respect to the Company’s liquidity, management noted that operating cash flows for fiscal 2010 should range between $190 million to $210 million.

The Company anticipates that routine capital spending (expenditures necessary to maintain existing facilities that generally do not increase capacity or add services) for 2010 will approximate $105 million to $110 million, hospital development capital spending (primarily new facility construction) should approximate $40 million to $45 million and nursing and rehabilitation center development capital spending (primarily the addition of transitional care services for higher acuity patients and new facility construction) should approximate $20 million to $25 million. Management expects that substantially all of these expenditures will be financed through internal sources.

The Company’s earnings guidance for continuing operations reflects the anticipated impact of reimbursement changes related to the revised Medicare patient classification categories under the resource utilization grouping system ("RUGs IV") and related policies for nursing centers and rehabilitation therapy services that became effective on October 1, 2010. While not material to the fourth quarter, the five LTAC hospitals and three nursing and rehabilitation centers recently acquired by the Company are included in the Company’s earnings guidance. The earnings guidance does not reflect any other reimbursement changes or acquisitions, nor does it include any divestitures or repurchases of common stock.

Mr. Diaz noted, "We look forward to continued progress in each of our operating divisions as we focus on the execution of our strategic operating plan. The fourth quarter of 2010 will present a number of operational challenges, including significant Medicare reimbursement changes in our nursing center and Peoplefirst rehabilitation businesses. Notwithstanding the reimbursement changes in our businesses, our continued focus on the quality of our services, our clinical outcomes and our value proposition as a low cost provider will continue to drive our operating results and business success."

Cluster Market Development Update

Completion of Vista Healthcare Acquisition

The Company also announced that its subsidiaries have completed the previously announced acquisition of five LTAC hospitals from Vista Healthcare, LLC ("Vista") for a purchase price of $178 million in cash (the "Vista Acquisition"). The Company financed the Vista Acquisition with proceeds from its revolving credit facility.

The Vista Acquisition includes four freestanding hospitals and one hospital-in-hospital with a total of 250 beds all located in southern California. The acquired assets currently generate annualized revenues of approximately $150 million and earnings before interest, income taxes, depreciation and amortization of approximately $27 million. The Company did not acquire the working capital of Vista or assume any of its liabilities. All of the Vista hospitals are leased.

Mr. Diaz commented, "The Vista Acquisition is a great opportunity for us to take advantage of the growing demand for our services in southern California. The Vista hospitals provide high quality services and care for patients with high acuity levels. We also believe that the clinical service offerings provided by Vista will allow us to attract more commercial and managed care business."

Mr. Diaz continued, "We are excited to have Vista’s employees join our organization and believe they bring resources and expertise that will complement our existing operations and local teams. We look forward to integrating our operations with Vista as soon as possible and to the continued growth of our Hospital Division."

Acquisition of Three Dallas Nursing and Rehabilitation Centers

In September, the Company announced that its subsidiaries had completed the acquisition of three nursing and rehabilitation centers in the Dallas-Fort Worth market for a purchase price of $38 million in cash. The Company financed this transaction with proceeds from its revolving credit facility.

These three owned nursing and rehabilitation centers have a total of 405 beds and currently generate annualized revenues of approximately $24 million and earnings before interest, income taxes, depreciation and amortization of approximately $3 million. The Company acquired the real estate associated with these recently constructed nursing and rehabilitation centers but did not acquire the working capital or assume any of the liabilities associated with these nursing and rehabilitation centers.

Definitive Agreement to Acquire Home Health Company in Ohio

The Company also recently announced that its subsidiaries have signed a definitive agreement to acquire a home health company in Ohio. The financial terms of the transaction were not disclosed. The Company expects to finance the transaction with proceeds from its revolving credit facility.

The home health company operates ten locations primarily in the central and northeastern regions of Ohio. The Company currently operates two LTAC hospitals and nine nursing and rehabilitation centers within the service areas of these home health operations. In addition, the Company’s Peoplefirst home care and hospice business currently provides hospice services in Columbus and Dayton, Ohio.

The assets being acquired currently generate annualized revenues of approximately $13 million and earnings before interest, income taxes, depreciation and amortization of approximately $2 million.

Within the first year following the closing of the Vista Acquisition, the Dallas nursing and rehabilitation center transaction and the Ohio home health transaction, the Company expects to incur certain transition costs that are expected to range from $4 million to $6 million. Excluding these costs, the Company expects that these transactions will be slightly accretive to earnings in 2010 and $0.18 to $0.23 per diluted share accretive to earnings upon completion of the integration process. The Company’s estimate of earnings accretion includes the expected negative impact of refinancing its current $500 million revolving credit facility, including both its existing indebtedness and the amounts used to finance these transactions.

The Des Moines Register had a great article on the new GAO Report mentioned in my earlier post.  Private investment firms have been buying up nursing homes in recent years, creating a complicated trail that makes ownership difficult to pinpoint. This lack of transparency makes it difficult to know who is ultimately responsible for care in a home.


Making that happen is a matter of properly putting in place the new health reform law.  The law includes more comprehensive reporting requirements for homes. While implementing those, federal officials should ensure it’s clear to the public who owns the homes.

What should really get lawmakers’ attention is the other story in this report: The nursing home business is apparently so profitable that firms seeking to make money for investors are snatching them up.

According to the GAO, investment companies bought more than 1,800 nursing homes around the country between 1998 and 2008. Ten large firms made 89 percent of the purchases. Some firms bought up entire chains. Some only wanted the real estate, and said they had no involvement in daily operations.

Among the reasons homes are such an attractive investment: They provide "reliable income streams," according to the GAO.

What? Nursing homes are moneymakers?

It defies the widespread notion that homes are locally owned, mom-and-pop operations struggling on shoestring budgets. In fact, two-thirds of homes in this country are for-profit businesses. They generally pay low wages to the workers providing care.

Meanwhile, industry officials complain incessantly to state legislatures that they need higher reimbursements for Medicaid patients. They say they lose money because the government doesn’t pay enough for poor residents.

They must not be losing much money if profit-seeking firms consider the homes good investments. And the reason is because the bulk of their revenue comes from Medicare and Medicaid. These government programs are the most dependable payers in the country.

And, apparently, the government is paying enough money to make homes good investment bets.

Yes, changes must be made so average Americans and government regulators can know who owns a nursing home.

But there’s something wrong when homes pay low wages to direct care workers, demand more money from the government and are considered lucrative ventures by private investment firms.

A GAO report on the complexity of private investment purchases demonstrates need for CMS to improve the usability and completeness of ownership data was released Wednesday. A summary of the finding are below and a link to the full report. Please let me know if you have any questions or concerns.  See highlights here.


GAO found that 1,876 unique nursing homes were acquired by PI firms from 1998 through 2008. While some of the acquisitions involved entire nursing home chains, which included both the operations and any owned real estate, other acquisitions involved only the real estate. Sometimes the same nursing homes were acquired more than once. Ten PI firms accounted for 89 percent of the 1,876 unique nursing homes acquired by PI firms during this period. Of the six PI firms from which GAO collected information, those that acquired a chain reported being more involved in nursing home operations than those that only acquired the real estate. These firms had representatives on the nursing home chain’s board of directors, but they generally characterized their involvement as related to the chain’s strategic direction rather than day-to-day operations. PI firms that acquired real estate only had no representation on the boards of the operating companies, but officials at one PI firm observed that some leasing arrangements have the potential to affect operations.


PECOS provided a confusing picture of the complex ownership structures and chain affiliations of the six PI-owned nursing home chains GAO reviewed. The database did not provide any indication of the hierarchy or relationships among the numerous organizational owners listed for PI-owned nursing homes. Further, PI ownership was often not readily apparent in the data, which could be the result of (1) PI firms not being required to be reported because of how they structured their acquisitions, (2) provider confusion about the reporting requirements, or (3) related entities that were reported but were not easily identifiable with the PI firms. Finally, PECOS chain information was not straightforward and was sometimes incomplete, making it difficult to link all the homes in a chain. Compounding these shortcomings, CMS’s ability to determine the accuracy and completeness of the reported ownership data is limited.


HHS has made limited use of PECOS ownership data. The only CMS division with routine access to PECOS data has been largely focused on populating the database and has not developed any standardized reports on nursing home ownership that it could share with interested parties. Some states collect their own ownership information but it can be limited to owners that operate in their state. As a result, tracking compliance problems among commonly owned homes or multistate chains can be ad hoc. State officials and others expressed interest in nationwide ownership data, such as PECOS, to improve nursing home oversight. Recognizing the growing interest in PECOS data, CMS has established a workgroup to consider how to accommodate the PECOS interests of other groups within the agency and is considering whether and how to provide access to external parties such as states. The implementation of the Patient Protection and Affordable Care Act provides CMS with an opportunity to address shortcomings in the current PECOS database and to make ownership information available to states and consumers in a more intelligible way.


Long Term Living Magazine had an article about Ventas, Inc.’s announcement that it has signed a definitive agreement to acquire all real estate assets of Atria Senior Living Group—the fourth largest assisted living operator in the United States—for $3.1 billion. Payment will be comprised of $1.35 billion in Ventas common stock, $150 million in cash, and the assumption or repayment of $1.6 billion of net debt.

Ventas will acquire from Atria 118 private pay seniors housing assets located in several affluent markets, including the New York metropolitan area, New England, Boston, and California. The portfolio to be acquired, which consists of 110 stable assets and eight redevelopment assets, contains approximately 13,500 units, with a median community size of 110 units, a median community age of 12 years, and a current average occupancy rate exceeding 87%.

Louisville-based Atria will continue to manage the portfolio of communities and will remain an independent, privately owned management company.

“The addition of 118 exceptional seniors housing assets […] will establish Ventas as the largest owner of seniors housing communities in the United States,” said Debra A. Cafaro, Ventas chairman, president and CEO, in a release.

Ventas expects the portfolio to generate approximately $640 million in revenues in 2011.

Upon closing, Ventas will have more than 35,000 seniors housing units across 350 properties in its portfolio and will conduct business with four of the top five assisted living operators in the United States.

“This new relationship with Ventas will combine Atria’s senior housing management and operations expertise with the strength of an S&P 500 company known for making high quality, long-term real estate investments,” said Atria CEO John A. Moore. “This puts us in a position to keep our residents, employees and commitment to quality as our utmost priorities. Ventas’ commitment to make a long term investment in our real estate will serve as the basis for the continued growth of the Atria platform.”

Completion of the transaction is subject to approval and other customary closing conditions. Ventas expects the acquisition to be completed in the first half of 2011.

Earlier this month, Ventas agreed to acquire the interests in 58 communities from Sunrise Senior Living, Inc., for $41.5 million. Upon closing, Ventas will own 100% of all 79 of its communities managed by Sunrise.



MedCity News had an article about nursing home operator AdCare Health Systems Inc. raising $11.8 million in debt to continue its aggressive acquisition strategy. The funding was sourced from 18 unnmaed investors, with the first sale coming on Oct. 26, according to a regulatory document filed by the Springfield, Ohio-based company.

Adcare closed on the leases of two Georgia nursing homes, which have a combined 300 beds and annual revenues of $21 million. The company paid $4.35 million for the two nursing homes, and also provided the lessor with about 390,000 shares of its common stock.


The company has closed five “major” transactions since it began its acquisition campaign at the end of 2009, said Chris Brogdon, chief acquisition officer. “We expect these facilities to be significant cash generators for AdCare,” he said.

The company plans to pursue other acquisitions, with a focus on the Midwest and Southeast, Brogdon said.

Adcare has closed multiple financing transactions during the last year aimed at fueling its acquisitions binge. Most of the roughly 30 senior living facilities the company manages are located in Ohio.

Adcare’s stock was trading at $4.16 early Friday, and is up about 11 percent on the year, compared to an increase of about 7.5 percent for the Dow Jones Industrial Average.


The Wall Street Journal had a recent article on the litigation between Reuben Schron and Murray Forman and Leonard Grunstein, the owner/operator of hundreds of nursing homes under SavaSeniorCare and Fundamental.  Lakewood Voice’s and MultiFamilyInvestor had articles based on the Wall Street Journal article.

Real-estate mogul Rubin Schron is fighting his former lawyer for control of a national nursing-home company in a battle that pits one of the city’s largest and most secretive landlords against an attorney who was a trusted adviser and business partner for years.  The fight involves SavaSeniorCare, an Atlanta-based nursing-home chain with 18,000 patients and 20,000 employees that Mr. Schron says he has the right to buy for $100 million—far less than what it’s worth—from his former lawyer, Leonard Grunstein, and banker, Murray Forman.

But the rift between Messrs. Schron and Grunstein runs deeper. Mr. Grunstein first represented Mr. Schron in the 1980s. Today the two sides can’t even seem to agree on whether they used to be friends.  Mr. Schron in court filings has said that their relationship ruptured after he realized that Mr. Grunstein’s interests in their real-estate deals were running counter to his own. Mr. Grunstein says he arranged some of Mr. Schron’s most lucrative acquisitions and that his former client is now trying to take a bigger piece of the pie than he’s entitled to.

The deal for the nursing-home chain was funded by Mr. Schron and devised by Messrs. Grunstein and Forman, according to court filings by both sides. Like other buyouts of big nursing home companies in the mid-2000s, the deal essentially split the chain, a publicly traded company called Mariner Health Care, into two pieces: one operated the facilities and paid rent to the other, which owned the real estate.

Mr. Schron owned the real estate company; Messrs. Grunstein and Forman eventually took control of the operating company, Sava, which paid rent to Mr. Schron for the right to operate those homes.  Mr. Schron claims in his complaint that the deal gave him the option to buy the operating company for $100 million.   Mr. Grunstein later told him the option was worthless and that he could use it “as toilet paper.”

Complicating the case is the tangled relationship between Mr. Schron and Mr. Grunstein, a partner in the New York office of Troutman Sanders LLP who has been on leave from the Atlanta-based law firm since last year. Troutman has filed claims in court for $1.5 million in attorneys’ fees it says are owed to the firm by Mr. Schron. Mr. Schron, in his complaint, said that many of the Troutman invoices are bogus.

Mr. Grunstein’s side says that the nursing-home deal, which the lawyer helped devise, enriched Mr. Schron to the tune of hundreds of millions of dollars, mostly from taxpayers via Medicare and Medicaid.

The spokesman also said that Mr. Schron demanded a rent increase that Messrs. Grunstein and Forman rejected because it would have affected patient care.  The money siphoned away from the nursing homes already affect patient care in short staffing and poor supplies.



Savannah Morning News had an article about the embezzlement case involving a mother and son team.  Mary Burroughs and Aaron Brent Burroughs pleaded not guilty in federal court to conspiracy, embezzlement and related charges involving her former employer, Riverview Nursing & Rehabilitation Center. 

The Burroughs are charged in a new indictment in the scheme that government contends benefited Burroughs Heating and Air Conditioning where Aaron Burroughs is general manager.

The prosecutor told U.S. Magistrate Judge G.R. Smith the defendant has violated her release by adding debt without the court’s approval.  Mary Burroughs has been free on a $50,000 pre-trial release bond since June 30, but First Assistant U.S. Attorney James Durham has challenged her release.

Smith allowed Burroughs to remain free, with new admonishments against moving any assets, but scheduled a bond hearing to determine if any violations have occurred. Meanwhile, Aaron Burroughs was allowed to remain free on a $20,000 unsecured bond.

Smith also admonished Burroughs against incurred any new debt or moving assets as a condition of his release.


The San Jose Mercury News had an interesting article about recent research into dementia. In 1980, about 2.8 million Americans were diagnosed with Alzheimer’s disease — the most common form of dementia.  But with better recognition, longer life expectancies and advanced treatment for other diseases such as cancer, that figure has nearly doubled in 2010, to 5.3 million, according to Elizabeth Edgerly, a chief program officer with the Alzheimer’s Association, a national advocacy group. In all, 42 percent of people 85 and older will get Alzheimer’s, Edgerly said.

"The ability to recognize dementia has improved over the last 20 years," said Rick Kovar, emergency services manager for the Contra Costa County Sheriff’s Office. "The science behind searching for people with Alzheimer’s has become efficient and scientific."

Dementia affects the brain in several ways. People lose short-term memory, the ability to communicate, express emotions and follow a conversation. They have severe mood shifts, and lose the ability to reason, problem-solve, sense danger and judge visual spacing.

"Wandering is one of the most common behaviors associated with dementia," Edgerly said. Sixty percent of people with dementia will wander at least once. Of those, 20 percent wander repeatedly.

The team studies "lost person behavior," which is different for various groups of people who are lost. For example, an elderly person with dementia behaves differently than a missing hiker or child.  A person with dementia may not recognize objects such as bodies of water or bushes, and walk right into them. They go until they become stuck. When they hit a barrier that blocks their way, they keep running into it until they find a way around, a phenomenon search professionals call "ping-pong." They tend to travel in as straight a line as possible.

Another well-known characteristic is patients trying to return to a place that may no longer exist.  Wanderers typically travel up to 2 miles away from their starting point, which is why the initial search perimeter starts at that distance and expands as needed.

Wanderers are more susceptible to becoming victims of crime, and because of their age they may be seriously injured in falls or made ill by poor weather.


Victor Napenas is the owner of the Valley Rest Nursing Home in Totowa, New Jersey.  He pleaded guilty to cheating the New Jersey Medicaid program out of $300,000. Evidence proves that Napenas and his wife filed claims to Medicaid and used the reimbursements to pay for trips to the Philippines and lavish family dinners. Insurance fraud prosecutor Riza Dagli said, “Napenas treated the facility’s Medicaid cost report like his own blank check, fraudulently reimbursing over $100,000 in personal expenses in a single year.”

New Jersey Attorney General Office said he used a business credit card to make personal purchases and submitted those charges into a cost report reimbursed by Medicaid.  The state of New Jersey recommended Napenas to be sentenced to only 90 days in jail as a condition to 3 years probation.   Why only 90 days?  What kind of deterrent is that?

The state also said that he must pay $302,877 in restitution to the Medicaid program, $45,263 in penalties and $31,859 in taxes owed to the state. He will also be banned from acting as Medicaid provider for 8 years.  Why should he ever be able to participate in Medicaid again?  Where is the taxpayer rage?