By DOUG IBENDAHL • January 22, 2014
Republican gubernatorial candidate Bruce Rauner pledges to run Illinois government “like a business.” In light of some disturbing facts which have come to light through multiple lawsuits involving Rauner’s former private equity firm, voters had better do their homework into what exactly the catchphrase “like a business” means to Mr. Rauner.
The nursing home industry came under serious stress in the wake of the Balanced Budget Act of 1997. The law significantly changed Medicare’s reimbursement system. Where before Medicare had reimbursed nursing homes for their costs plus a profit, now there were strict limitations on reimbursements and new regulations on how long patients could stay in nursing homes for certain conditions.
In 2000 The Wall Street Journal said: “The vultures are circling the carnage in the nursing-home industry. With some of the largest nursing-home operators under bankruptcy protection and others heading in that direction, a number of deep-pocketed investors are preparing to swoop in on the choice morsels.”
Bruce Rauner’s Chicago-based investment firm GTCR, LLC (formerly known as GTCR Golder Rauner) decided to get in on the action and one vehicle it used was Trans Healthcare Inc. (“THI”). THI’s launch to acquire nursing homes appealed to GTCR “because a new prospective payment system for Medicare was just being implemented,” said Ned Jannotta Jr., then a GTCR principal.
Jannotta continued, “We thought it would create a lot of distress, and there would be a decline in multiples for assets and a decline in buyers for those assets.”
Rauner was with GTCR for three decades. He left the firm in October 2012 in advance of his run for governor.
GTCR’s foray into the nursing home business might have been good for the bank accounts of Bruce Rauner and his friends. But according to court documents, some elderly residents of those nursing homes paid the ultimate price.
Arlene Townsend’s Tragic Story
The following is quoted in its entirety from the Jere Beasley Report:
A jury in Polk County, Florida, returned a $1.1 billion verdict last month in a case involving what was described as “corporate corruption” and “misconduct” that ultimately led to the death of a nursing home resident. The jury agreed that defendant, Trans Health Care, Inc. (THI), deserved to be punished for such severe corporate greed that it caused Ms. Arlene Townsend to suffer for years in a nursing home that was short-staffed and under-supplied. The jury awarded $110 million in compensatory damages and $1 billion in punitive damages.
The Plaintiff’s lawyers presented evidence showing how Ms. Townsend was the victim of a scheme by an enterprise that included: New York real estate investors; financiers General Electric Capital Corporation (GECC) (a private bank) and Ventas, Inc. (a real estate investment firm); and multi-billion dollar Chicago private equity fund GTCR Golder Rauner, LLC. According to trial testimony, this group conspired to run a nursing home chain into insolvency without regard to the harm the nursing home residents would experience. Ms. Townsend was said to have been one of the victims of the Auburndale facility THI managed and operated.
An expert forensic accountant testified that GTCR founded THI in 1998 with a plan to create the largest privately owned nursing home company in the country through a series of mergers and acquisitions. Their Boards of Directors were composed solely of investors and bankers, and did not include a single health care official. From 1999 to 2003, GTCR and THI began acquiring nursing homes with funding from GECC, Ventas and other lenders. THI became one of the nation’s largest health care operators with more than 220 facilities and more than a billion in revenue at that time.
THMI was the management company of the $1 billion GTCR/THI empire. When Medicare money for residents’ rent flowed into the THI account, GECC and Ventas took their share before monies were available to cover payroll, supplies, utilities, etc. for the hundreds of nursing homes, according to evidence presented at trial. Insider operators and former employees began suing GTCR/THI over poor management, as did nursing home residents and their families because of what was described as abysmal care. Eventually, to protect itself from financial loss, GTCR/THI agreed to sell THMI for a mere $100,000 to Fundamental Long Term Care, Inc. (FLTCI), a shell company that had no employees. [Emphasis added. More on GTCR and its relationship to FLTCI, including attempts to avoid liability, is included below.]
From another article on the verdict: “The case went beyond the nursing home’s extreme negligence that resulted in Townsend’s death and revealed its investors had conspired to run the nursing home chain into insolvency without any regard to residents’ care. Evidence showed the investors — that included . . . multi-billion dollar Chicago private equity fund GTCR Golder Rauner, LLC – set out to build their empire through a series of mergers and acquisitions with the ultimate goal of taking the company public, cashing out and making a lot of money. Not one person on the Board of Directors was a health care official which resulted [in] poor care for residents at some of their locations.”
Ms. Townsend was not the only GTCR/THI victim.
The Case of Joseph Webb
The following is quoted in its entirety from the website of Wilkes & McHugh, P.A., the law firm which represented Mr. Webb:
Joseph Webb was a resident at University Place from 1995 to 2005. While there, he suffered multiple injuries including pressure sores or lesions on his right foot, right calf, right heel, coccyx (which required debridement and surgery), buttocks, sacrum, and even his scrotum. Staff did not properly care for the pressure sores on his right leg and foot and this resulted in gangrene causing his leg to be amputated below the knee. He also suffered unexplained weight loss, malnutrition, and multiple infections.
The suit alleged that Mr. Webb was the victim of a scheme by an enterprise that included: New York real estate investors; financiers General Electric Capital Corporation (a private bank) and Ventas (a real estate investment firm); and multi-billion dollar Chicago private equity fund GTCR. The plaintiff alleged they conspired to run a nursing home chain into insolvency without regard to the harm the nursing home residents would experience. Mr. Webb was one of the residents of the Gainesville, Florida facility THI and THMI managed and operated. According to testimony by a forensic accountant, Trans Healthcare’s former company leaders engaged in illegal political contributions and then got reimbursed with tax dollars by charging the contributions to the government through Medicare reports.
Mr. Webb was awarded compensatory and punitive damages in the amount of $900 million.
You can read more here.
We’ve detailed only two cases involving GTCR/THI. But there is more. And in reporting on the Townsend verdict last year, Senior Housing News said: “This is the fourth major verdict against Trans Healthcare Inc.: in 2010, another Polk County jury awarded a $114 million verdict against them for another nursing home case for alleged abuse, reports The Ledger. Additionally, there has been a $900 million verdict against the company in Gainesville and a $200 million verdict in St. Petersburg.”
Attempt to Escape Accountability?
There is also some interesting related litigation currently moving through the bankruptcy court. On November 13, 2013, a U.S. Bankruptcy Judge for the U.S. Bankruptcy Court, Middle District of Florida, Tampa Division, notes “[a]s of now, the targets are defendants to fraudulent transfer and alter ego claims asserted by the creditors in this Court.” The case is In re Fundamental Long Term Care, Inc., Debtor, Case No. 8:11-bk-22258-MGW, Chapter 7.
While noting that no inference should be drawn from its use of the term “targets,” the Court for ease of reference uses “targets” to include General Electric Capital Corporation; Fundamental Administrative Service, LLC; THI of Baltimore, Inc.; Fundamental Long Term Care Holdings, LLC; Murray Forman; Leonard Grunstein; Rubin Schron; Ventas, Inc.; GTCR Golder Rauner, LLC; GTCR Fund VI, LP; GTCR Partners VI, LP; GTCR VI Executive Fund, LP; GTCR Associates, VI; Edgar D. Jannotta, Jr.; and THI Holdings, LLC.
Also see here for another ruling in the same case from March of last year.
One of GTCR’s attorneys at Kirkland & Ellis LLP also has this interesting tidbit posted on the firm’s website: “Aegis v. TransHealtcare, Inc., et al. Represented TransHealthcare and GTCR private equity fund in litigation initiated by nursing home landlords in state and federal courts, alleging RICO violations, fraudulent transfer, and other torts. Resolved through settlement.”
We’re just getting the facts out there. Bruce Rauner now needs to fully explain his former firm’s role in all of this. Especially given the fact that the most vulnerable of elderly citizens have been impacted, hopefully we’ll hear something more than Mr. Rauner’s typical “that’s baloney” write-off.
Republicans don’t have a problem with someone making money. But most Republicans do care how it’s made.
Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.