Care Enterprises Lacks Bond Required for Patient Funds

Care Enterprises, the Tustin-based nursing home operator that filed for bankruptcy last week, has been operating its 70 homes in California without a type of bond required by the state to protect the personal funds of patients.

Care told state officials that it has not been able to obtain the surety bonds since November, when the company that formerly provided them went out of business. Care is seeking a waiver from the requirement, according to state and company officials.

State health officials say nursing home residents, most of whom are elderly and frail and may not have friends or relatives to assist them, sometimes ask nursing homes to bank their savings. Also, indigent patients often entrust the nursing homes with the $35 a week they receive from Medi-Cal to buy cigarettes, slippers and other personal items.

By law, the patients’ money must be kept in a separate trust account and may not be commingled with the nursing home company’s operating funds. Surety bonds are required to ensure that patients would be reimbursed if their money disappeared for any reason, such as theft.

During routine inspections of Care facilities over the last few months, officials of the Los Angeles County Health Facilities Division said they learned that Care lacked bonds for 12 facilities that make a practice of handling patients’ funds. They estimate that patient funds held by these facilities total about $225,000.

Ralph Lopez, deputy of environmental health/facilities for Los Angeles County, said he was concerned about the lack of bonding and referred his concerns to the state.

Stan Roman, assistant branch chief for licensing and certification for the state Department of Health Services in Sacramento, said the state is pulling together information to determine the amount of patient money that is in potential jeopardy because of the bond problem.

Teresa Hawkes, state health services deputy director for licensing and certification, said Care informed her office in November that it was unable to get bonding for its facilities, most of which were formerly bonded. She said Care “has been honest and up front about this problem--and it is a sticky one.”

Hawkes said that she would never consider closing all of the Care facilities for lack of a bond and that the state Health and Safety Code gives her the option to waive the bond requirement. She said, however, that a waiver has never been granted and that she wants to avoid setting a precedent that could trigger a rush of waiver requests from other operators.

Hawkes said that if she determines that Care in fact cannot obtain a bond, she will consider the company’s proposed alternative of providing a letter of credit or some other remedy.

Meanwhile, she said, Care has been encouraging relatives of its nursing home residents and “other responsible parties” to take charge of more of the patients’ money.

After a futile seven-month attempt to negotiate with its bankers and bondholders, Care last week filed to reorganize its debt under Chapter 11 of the Federal Bankruptcy Act.

Care officials stressed that the bankruptcy would not affect the operations of its nursing homes because only Care Enterprises, the parent corporation, was filing for bankruptcy and not the facilities or the Care subsidiaries that operate the facilities.

However, only a few days after Care declared its bankruptcy, Care subsidiaries that operate nursing homes in West Virginia and New Mexico also joined the bankruptcy proceeding to counter litigation.

And state officials generally believe that Care’s inability to get a surety bond for its patients has a lot to do with the unwillingness of bond companies to do business with a financially troubled company, especially one in bankruptcy.

Ruby Barton, co-owner of Barton Smith Insurance, an Arkansas-based company that provides surety bonds for Beverly Enterprises, the nation’s largest nursing home chain, said bonding firms require clients to indemnify surety bonds, meaning that bonding companies who cover a loss expect the clients to repay them. Therefore, she said, bonding firms avoid anyone with a shaky financial statement or in bankruptcy.

Care Enterprises contends that patients in its facilities should not worry about the bond problem. “No money has ever been lost in patient accounts, and we have an extensive internal system to assure that,” said Bill Izatt, Care’s vice president of marketing.

Bonding is only one of the problems at Care that have recently caught the attention of local and state nursing home licensing officials.

Roman of the state Department of Health Services said his agency has taken legal action to revoke the operating licenses of two Care facilities: Golden State Habilitation, a 155-bed nursing home for the developmentally disabled in Baldwin Park, and Care-West Wyngate Nursing Center, formerly called Mountain Park, a 92-bed nursing home in Tujunga.

The revocation proceedings, which usually take about 18 months, have raised a red flag, Roman said, and caused the department to begin a review of Care’s statewide network. He said that while Care “has some excellent facilities” the state wants to learn whether a pattern of problems is developing.

Lopez of the Los Angeles County Health Facilities Division, which is under contract with the state to administer nursing home licensing and certification, said severe problems involving patient care were discovered during an inspection last month at a third facility, Palomar Nursing Center, a 99-bed skilled nursing center that Care Enterprises operates in Inglewood. As a result, he said, the county department probably will ask the state to immediately suspend the license and close the home--a step that is rarely taken and only when there is an imminent threat to the health and safety of occupants.

County officials are also seeking to terminate Palomar’s certification that allows that facility to admit Medicare and Medi-Cal patients.

As a result of the inspection, which was conducted from March 15 to March 29, Palomar was issued 21 citations and fined $89,700 for failing to meet minimum state and federal standards. Among the violations that were cited: patients lying in their own excrement for an extended period of time, patients with bed sores caused or worsened by lack of attention and medication administered improperly or not at all--and understaffing of nurses.

Rick Matros, vice president of operations for Care Enterprises, said that the conditions for which Care was cited at Golden State Habilitation and Care West-Wyngate were found during inspections that occurred a year or more ago and that he believes that they have been corrected.

Matros acknowledged that there are staffing and other problems at Palomar Nursing Center that have come to his attention since he took over his current post five months ago. He said he was alerted to some of the conditions at Palomar only after he had made some changes among his field supervisors. “We discovered certain things late in the game,” he said.

He said he is taking corrective actions, plans to cooperate with the state and has been adding staff in the field, especially in the area of quality assurance.