County Asks for Warning of Care Home Shutdowns

Angered that a bankruptcy trustee suddenly closed down a troubled Reseda nursing home Friday night, evicting 63 mostly elderly residents, the Los Angeles County Board of Supervisors voted unanimously Tuesday to seek advance warning of such actions in the future.

“We’re trying to get federal legislation to require a bankruptcy trustee to notify the county or the local policing agency of any proposal to close a facility,” said Supervisor Zev Yaroslavsky, who sponsored the motion.

The supervisors also urged that the trustee, accountant Alfred Siegel, be censured for shuttering the Reseda Care Center after allegedly giving state officials only a few hours’ notice, and requested an investigation into the closure.

Yaroslavsky said the county knew of the facility’s financial woes and had been monitoring the situation for several weeks. But, he said, health officials had not expected the abrupt shutdown.

Well after darkness fell Friday, the residents, many of them bedridden or otherwise ailing, were wheeled or ushered to ambulances or the cars of their children or other relatives. Most were taken to one of 14 other nursing homes.

While the supervisors called for legislation Tuesday, state officials pointed out that laws designed to protect against such closures are already in place.

Brenda Klutz, deputy director of licensing for the state Department of Health Services, said nursing homes must first notify the state of a desire to close. The state then has 15 days to evaluate that request.

If the state agrees to the closure, Klutz said, the home is required to give the residents or the residents’ legal guardians 30 days’ notice.

However, UCLA law professor Kenneth N. Klee said that Siegel, as a federally appointed trustee, may not have been legally obligated to abide by the state’s 30-day notification rule.

“Federal law requires trustees to operate businesses in accordance with state law, but that provision does not apply if the trustee is liquidating or shutting down a business,” said Klee, an authority on bankruptcy law.

A trustee for more than four years, Siegel currently acts as trustee in several other bankruptcy cases, according to the office of U.S. Trustees in Los Angeles.

“The trustee’s interest is to maximize the amount of the estate to pay off the creditors,” said Assistant U.S. Trustee Donald Walton. “The more assets the trustee disperses, the more his payment will be.”

Walton said trustees are paid a percentage of the assets they liquidate and pay to creditors. That fee is determined by the bankruptcy court.

As the county supervisors met, and state officials visited the former residents of the Reseda facility Tuesday to check on their welfare, details began to emerge of financial chaos in the months leading up to the home’s filing for Chapter 11 bankruptcy protection Sept. 5.

The Reseda home, and several others in the state, were run by Phoenix Health Group, based in Scottsdale, Ariz., and owned by Jon Robertson.

In its bankruptcy filing, Reseda Care Center listed total assets of $400,000 and total liabilities of $900,000.

One of Reseda Care Center’s biggest creditors, according to court documents, is HCR Medical Receivable Funding Corp., which filed a claim for $936,000. Another creditor is the Internal Revenue Service, which is owed from $700,000 to $900,000 in unpaid payroll taxes.

Other creditors include: a Studio City X-ray concern called Medical Diagnosis with bills of $51,766; Anaheim General Hospital, which is owed $24,047; Pacewest Food Services in San Fernando, which is owed $16,942; West Valley Pharmacy in Encino, with claims of $15,488; and Dr. Suman Patel in Van Nuys, who is owed $6,000.

The Reseda nursing home’s landlord, Sidney A. Franklin, said in court documents, that he was not paid the $24,000 monthly lease fee for July, August or September.

Phoenix Health Group (PHG) was set up by Robertson in 1992, and by the first quarter of this year it had debts of $2.5 million and payroll tax liabilities of $600,000, according to the court records.

William F. Reed Jr., an official with HealthCare Capital Resources and HCR, said in court documents that in April, HCR agreed to advance funds to PHG’s Reseda, Costa Mesa, Long Beach and Alta Loma convalescent centers.

Robertson “paid himself in excess of $900,000 in salary in 1996 even though his businesses were in downturn,” Reed alleged in court documents. HCR agreed to lend money only after Robertson agreed to cut his monthly pay from $75,000 to $52,500.

By June, however, Robertson’s California businesses “were substantially out of cash,” Reed alleged.

By then, Robertson had given power of attorney to four people, including PHG’s chief financial officer Don Hinckley, and PHG put up for sale four California nursing care centers with 346 beds. The total asking price was $2.83 million, including $600,000 for its Reseda site, court documents show. Various offers for the businesses were “presented . . . to Mr. Robertson. None of the offers were satisfactory . . . “ according to court records.

Cash flow in Robertson’s business began to look more troubled when the state Department of Health and Human Services threatened to cut off Medicare payments because PHG’s Port Bay Care Center in Costa Mesa failed three state inspections during the spring and summer.

Reed alleged in court documents that Robertson was in a rehabilitation program because of his cocaine use.

An attorney for HCR alleged in a court document that “Jon H. Robertson is admittedly incapacitated as a result of an apparent drug addiction. Previously, Robertson grossly mismanaged [his company’s] affairs . . . including looting Debtor’s operating funds and converting in excess of $600,000 . . . belonging to HCR.”

An attorney for Robertson has said that his accusers have no evidence to back up the drug allegation, and that it is irrelevant because he has not been involved in the day-to-day operations of the business recently. A federal bankruptcy court judge appointed a trustee Monday to conduct an immediate examination of conditions at PHG homes in Long Beach and Alta Loma, and report back to him today.

State health officials held out the hope that another nursing home operator would buy both those homes. “I’m very confident that we . . . will find a suitable licensee to operate the remaining two facilities,” Klutz said.

Like the Reseda home, the Port Bay facility has closed down, but with less trauma to its residents, state officials said.

In their first unannounced inspection at the Port Bay nursing home, officials of the state Department of Health found that patients suffered from bed sores and the problem had not been corrected by the time of two subsequent visits by health care workers, said Jacqueline Lincer, district administrator for the department’s Orange County District.

On Sept. 5, the federal Health Care Financing Administration, part of the Department of Health and Human Services, terminated Medicare and Medi-Cal contracts with Port Bay Care Center because of the continued substandard care, Lincer said.

Shortly afterward, PHG decided to evict the nursing home’s 70 patients because the federal health care subsidies would no longer be coming in, Lincer said.

A state Department of Health social worker began overseeing the move in September and for five days the patients were moved to 14 Orange County nursing homes. Some families chose to move patients to nursing homes outside the county.

State health officials will continue to check on the patients for the next 30 days and again in the next six months.

Lincer said there were “early warning signals” that Port Bay Care Center was in trouble. The local utility provider called to tell them they were about to shut off power because it had not been paid. The state department also received complaints that employees weren’t being paid.

Times staff writer Eric Slater wrote this story, with additional reporting by staff writer Solomon Moore and correspondent Claire Vitucci.