Rauner lies about links to nursing home scandal

By DOUG IBENDAHL • March 10, 2014

 

We don’t use the term “lies” in this article’s title lightly. But Mr. Rauner gives us no choice.

 

During last week’s gubernatorial debate sponsored by WGN/Chicago Tribune, GOP hopeful Bruce Rauner finally got a question about his investment firm’s involvement in the nursing home business and the multiple massive jury verdicts for plaintiffs who claimed negligence and wrongful death.

 

The question came from debate moderator Bruce Dold, Editorial Page Editor of the Chicago Tribune. Here is the transcript of the entire exchange on the nursing home issue:

 

DOLD: Mr. Rauner, there is a nursing home ad that’s running. The ad essentially says that the company that you chaired, GTCR, invested in a healthcare company, that company was the target of verdicts of hundreds of millions of dollars given to families of victims, alleged victims of the company, at least three deaths. Can you tell us what happened there, and do you accept some responsibility for what happened to those victims?

 

RAUNER: Well first of all I’ll say that my heart goes out to the families who lost loved ones. That is always a tragedy whether in a nursing home or anywhere else. I will also say that this is an outrageous political attack, taking advantage of a death or suffering of a family to score political points. It’s outrageous and disgusting. The facts are coming out, they’ll be clear, it’s still working through the courts [interrupted by Dold].

 

DOLD: What are the facts? I think it would help [inaudible, overlapping conversation] . . . what exactly happened with that company?

 

RAUNER: The company was an investment that my company had made in a nursing home company, the company failed, it went bankrupt, we lost all our money. A lawyer sued the company, made outrageous, exaggerated claims. The company that was in bankruptcy did not defend itself. The Trustee chose not to defend because they thought the lawsuits were frivolous, and the company had no money.

 

DOLD: Are you confident that the care that was provided was substantial or was it substandard?

 

RAUNER: We would never tolerate inadequate care. And the simple fact is the deaths that occurred in the nursing homes did not occur while the company we invested in was involved with those nursing homes.

 

DOLD: Y’all satisfied with that?

 

DILLARD: You know the amazing thing that astonishes me – they didn’t have one person with healthcare experience on that board. And I think if you look at what has been written in the Wall Street Journal you will see a scheme that was to literally bleed those nursing homes dry and people died, multiple people. And if you are going to be put in charge of DCFS or be put in charge of the kinds of programs the state has to run, you need to be much more sensitive to human life and not have a callous disregard of human life which is what I believe was going on in those Florida nursing homes. And I think the judgments over time will prove that out.

 

You can listen to the entire March 5 debate HERE.

 

Let’s now go through Rauner’s response, point by point.

 

RAUNER: “A lawyer sued the company, made outrageous, exaggerated claims.”

 

FACTS: First of all, lawyers don’t sue. Plaintiffs sue. Lawyers do what lawyers do as officers of the court. Everything a lawyer does in a lawsuit is solely on behalf of the plaintiff(s). In the cases at issue the lawsuits were brought by surviving family members on behalf of the estates of persons who died after receiving negligent care at the nursing facilities. Mr. Rauner of course knows all of this, but he chooses to falsely characterize this whole matter as being about those “greedy trial lawyers.” He simply doesn’t want elderly faces put on the scandal.

 

As far as “outrageous, exaggerated claims” – well multiple juries clearly disagree. Unlike Rauner who only parrots talking points to divert any serious question, multiple juries actually heard from witnesses who testified in open court under penalty of perjury. After weighing all the evidence, those juries to date have awarded judgments totaling well over two billion dollars. 

 

RAUNER: “The company was an investment that my company had made in a nursing home company . . .”

 

FACTS: Rauner’s firm, GTCR, didn’t simply “invest” in a nursing home company. GTCR spearheaded a foray into the nursing home industry with the specific mission of making a lot of money for investors. GTCR didn’t just go out and find an existing company in which to invest. GTCR founded a new company that would be the vehicle for buying-up nursing homes around the country. That vehicle was Trans Healthcare Inc. (“THI”) and for a significant period of time GTCR owned 82.7% of THI.

 

And incredibly, as Kirk Dillard correctly noted in the debate, GTCR signed-off on a Board of Directors for THI which was composed solely of investors and bankers. A company with the objective of becoming the nation’s largest nursing home owner/operator did not have a single health care official on its Board.

 

By GTCR’s own admission, THI was launched in 1998 “because a new prospective payment system for Medicare was just being implemented” and “[GTCR] 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.” 

 

THI did in fact soon become one of, if not the largest private owner of nursing homes in America with approximately 220 facilities around the country. At one point the company reportedly had over one billion dollars in revenue.

 

RAUNER: “the company failed, it went bankrupt, we lost all our money.”

 

FACTS: First of all, we’re constantly told that Rauner is such a great businessman and knows how to run successful companies. Well is he a great businessman or does he run the nation’s largest nursing home chain into bankruptcy?

 

Second of all, where is the proof that “we lost all our money?” Rauner provides absolutely nothing to back up his claim. Not only does Rauner provide no evidence – but we don’t even know what he’s talking about. Assuming his statement is something more than just a blatant lie (which is very much in question), is he just referring to an accounting write-off? Is the “loss” simply what the cost accountants booked when the remaining assets of a depleted THI carcass were finally transferred to a new shell corporation after massive court verdicts began to be handed down? We simply don’t know and Rauner continues to deliberately conceal key facts.

 

The reporters covering this race clearly don’t understand there is a huge difference between cash flow and cost accounting. A business could use up an asset and when it’s finally sold, a loss might be booked for accounting purposes. That happens all the time.

 

But I’m not much interested in what GTCR eventually sold its nursing home business for, after all of the bleeding had occurred. What I want to know is how much cash flow did the business generate for the investors before GTCR and others decided it was time to flee the scene.

 

Rauner refuses to provide a scintilla of useful information. Meanwhile, we have a wealth of evidence that GTCR did quite well in the nursing home industry – or at least until people started dying and courts started handing down massive awards to the estates.

 

We have for example sworn testimony by a forensic accounting expert in the Arlene Townsend case that more than $800 million in assets were stripped away from THI by the real estate investors and financiers.

 

So yes, if that kind of thing went on, it would hardly be surprising that when GTCR finally decided to cut the cord, its accountants might have booked a “loss.” But that tells us absolutely nothing about how much money GTCR may have reaped from the business before things went south.

 

RAUNER: “The company that was in bankruptcy did not defend itself, the Trustee chose not to defend because they thought the lawsuits were frivolous, and the company had no money.”

 

FACTS: Yet again, Rauner provides absolutely no support for his claim when he says the Trustee “thought the lawsuits were frivolous.” In fact it’s extremely silly to call lawsuits “frivolous” after massive verdicts have been won – and that’s exactly why there is no evidence the Trustee has ever said such a thing. No one does that. A defendant might call a lawsuit “frivolous” when it’s initially filed. But once a jury hears the case at trial and then awards a massive verdict, you can’t use the word “frivolous” anymore. This has happened multiple times against THI.

 

In fact what we do have now is new litigation in Federal District Court in Central Florida. The massive verdicts against THI were won in state court. The new federal lawsuit was brought by one of the estates which won in state court and it is now trying to unwind an alleged conspiracy by GTCR and others to hide assets from creditors (including any successful plaintiff). The plaintiff in the current federal case is taking this step because after 4 years there has been no payment on the judgment a Florida state court ordered due and owing to the estate of one of the deceased nursing home patients. The current federal case is brought by the estate of Juanita Jackson, who contrary to the lie told by Rauner in the debate, died prior to GTCR’s transfer of remaining THI assets.

 

Not only is there no support for Rauner’s claim about the Trustee, but in fact as recently as this past November a U.S. Bankruptcy Court cited the Trustee’s repeated remarks that “discovery to date has revealed fraudulent conduct of third parties . . . to place Debtor [Fundamental Long Term Care, Inc.] and THMI’s assets beyond the reach of creditors, either through various avoidable transfers or by and through a fraudulent creation of assertedly separate entities to house the removed assets and operations.”

 

Numerous U.S. Bankruptcy Court filings definitively prove that Rauner’s made-up representations regarding the Trustee’s state of mind are absolutely false.

 

RAUNER: “The simple fact is the deaths that occurred in the nursing homes did not occur while the company we invested in was involved with those nursing homes.”

 

FACTS: THI Holdings, LLC d/b/a Trans Healthcare, a GTCR portfolio company, filed a motion to dismiss with the U.S. Bankruptcy Court. In denying GTCR’s motion to dismiss, the court held in pertinent part:

 

At the March 21, 2013 hearing on THI Holdings’ motion to dismiss the Trustee’s initial complaint, THI Holdings’ counsel argued – as it does in its motion to dismiss the Trustee’s amended complaint – that there is no coverage under the indemnification agreement if the only connection to the nursing homes at issue is that they were managed by THMI . . .Here, the Trustee has alleged that THI did have a connection to the nursing homes at issue other than the fact that they may have been managed by THMI. The Trustee specifically alleges that THI operated – not managed – the nursing homes using THMI’s assets. [Emphasis added.]

 

In addition, the U.S. Court of Appeals for the Eleventh Circuit also obviously disagrees that THI and its subsidiary Trans Health Management, Inc. (“THMI”) were not “involved in those nursing homes.” Here’s how the U.S. Court of Appeals described the nursing home relationship of THI and THMI in its August 2013 decision:

 

The complex factual and procedural history surrounding this case began in 2003, when Juanita Amelia Jackson (”Jackson”) lived at the Auburndale Oaks Healthcare Center, a nursing home in Polk County, Florida, operated by Trans Healthcare, Inc. and Trans Health Management, Inc. Soon after, Jackson was released from the nursing home, and later died on July 6, 2003. About a year later, the Estate of Juanita Amelia Jackson (”Estate”), through Cathy Jackson-Platts, sued thirteen defendants, including Trans Healthcare and Trans Management, alleging that their negligence caused Jackson’s death. [Emphasis added.]

 

Arlene Townsend was also a resident at the Auburndale Oaks Healthcare Center. Ms. Township resided at the Auburndale nursing home from 2004 until her death there in 2007 at the age of 69.

 

GTCR’s nursing home point-man and Rauner’s fellow GTCR Principal, Edgar D. Jannotta, was deposed in at least one of the nursing home wrongful death cases.

 

The Polk County Circuit Court in Florida would also disagree with Rauner’s claim that his company was “not involved with those nursing homes.” As evidenced by the extensive court docket in two of the wrongful death cases (in Jackson here and in Townsend here) Rauner’s GTCR and GTCR-linked THI and THMI have remained active parties in the litigation for years.

 

The truth is that parties which are “not involved” do not remain in lawsuits for many years (in Jackson, for more than 10 years). If Rauner’s companies were truly “not involved” at the time of the nursing home deaths – motions to dismiss would have been filed and granted years ago.

 

According to a 2002 filing with the Security and Exchange Commission by one of GTCR’s co-investors, THI was specifically cited as the “property manager” of nursing home facilities. And in 2004 and 2005, Rauner’s GTCR was appointing the Chief Executive Officer, Chief Financial Officer and General Counsel for THI. In fact GTCR crowed about it: see here and here.

 

The record clearly demonstrates that not only were GTCR’s THI and THMI involved with the nursing homes during the time of residency and death of victims, but in fact Rauner’s GTCR was directly linked to the management and/or operation of those facilities.

 

RAUNER: “We would never tolerate inadequate care.”

 

FACTS: In September of 2003, Ohio State Representative Kenneth Carano joined representatives of the Service Employees International Union (SEIU) at a press conference to discuss the questionable quality of care being provided at area nursing homes operated by THI.

 

In December of 2003, Ohio State Senator Teresa Fedor and representatives of SEIU held another press conference to draw attention to “poor patient care, lack of building maintenance, and reduced staffing” at nursing homes operated by THI. SEIU also launched a website to provide “consumers with detailed information about the crisis of care at Trans Healthcare Inc.’s nursing homes.”

 

There is also this 2003 article discussing the Oklahoma Health Department’s denial of THI’s proposal to lease a nursing home. Here’s an excerpt:

 

In its ruling this week, the Health Department noted that during the past five years, 28 of 93 nursing homes owned, leased or managed by THI were cited and fined for deficiencies related to “substandard quality of care.”

 

While there were no documented deaths, THI’s deficient care in 30 percent of its nursing homes placed patients in “immediate jeopardy or actual harm,” according to a state Health Department investigation of THI.

 

Clearly there was ample early notice of substantial problems at nursing homes owned, operated and/or managed by Rauner/GTCR companies. Rauner and his firm GTCR had an opportunity to do something about the poor care cited in THI nursing homes. Plenty of alarms sounded and Rauner could have been pro-active in fixing the problems. Instead, Rauner and his fellow investors eventually made the decision to cut-and-run.

 

While I’m not much of a Kirk Dillard fan, his statement in the debate that Rauner’s business practices with respect to the nursing homes exhibit “a callous disregard of human life” is 100% correct. 

 

It is beyond shameful how most Illinois media outlets have failed to perform even cursory due diligence on Bruce Rauner’s business background. A special circle of shame is reserved for the Chicago Tribune which finally asked Rauner a question about the nursing homes – and then less than 48 hours later endorsed the man who lied to the newspaper’s face at its own debate.

 

Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.

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