Alleged Medicare fraud scheme spells more trouble for Rauner

By DOUG IBENDAHL • May 19, 2014

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Juanita Jackson did not have to die at the age of 67. Family members thought they were doing the right thing by placing her in a nursing home for rehabilitation. Now for the rest of their lives Mrs. Jackson’s family must live with the decision to place her in a facility controlled by Bruce Rauner’s private equity firm GTCR.

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Mrs. Jackson died on July 6, 2003 – long before GTCR made its decision to finally abandon what was left of the plundered investment vehicle (Trans Healthcare, Inc.) which GTCR originally created in 1998 and which within a few years had made GTCR one of the nation’s largest players in the nursing home industry.

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The details of abuse and neglect suffered by Mrs. Jackson in that Florida nursing home are sad and horrific. Unfortunately the story only gets more distasteful once you peel away the manufactured complexity – all designed by lawyers and investment bankers for the specific purpose of clouding what are in fact some simple truths.

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Once you get beyond all of the artificial shell corporations and questionable asset shuffling – at the core of this mess about Rauner and the nursing homes is plain old fashioned greed. A lot of elderly people suffered unnecessarily, and some died – while a number of wealthy individuals who had never before shown any particular interest in elder care, got marginally richer.

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When that greed is also linked to alleged criminal abuse of our government’s Medicare and Medicaid programs, it’s time for folks to start paying attention.

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As we previously reported, a Federal Judge in Florida ruled on March 14 that allegations against GTCR for aiding and abetting a breach of fiduciary duty have merit and therefore can proceed in U.S. Bankruptcy Court. Rauner was the Chairman of GTCR when all of the alleged wrongdoing took place.

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The March 14 Federal Court ruling relates to a Complaint filed December 19, 2013 by representatives of nursing home victims’ estates (including the estate of Juanita Jackson) and the current holder of what’s left of the nursing home business (the bankruptcy trustee).

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The Complaint’s allegations center on fishy financial transactions involving GTCR, the GTCR-controlled Trans Healthcare, Inc. (“THI”), and other investors, lenders, and real estate owners. The entire 227-page Complaint can be read HERE. The Federal Judge’s 40-page ruling of March 14 denying most of GTCR’s motion to dismiss is HERE.

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Rauner says he’s “very comfortable” allowing the case to play out in court. And incredibly, Rauner also said this, “[t]he reality is, what happened in those nursing homes, it sounds like there were some very sad events. I hope if there is any wrongdoing, that it gets punished.”

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Not only does Rauner know better, he continues to assume we’re all gullible bumpkins.

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Courts have already heard multiple cases involving wrongful death and negligence at GTCR controlled nursing homes. Juries have weighed the evidence, heard from many witnesses who testified under penalty of perjury, and then issued their verdicts.

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The Juanita Jackson Estate for example filed its wrongful death action against the GTCR controlled THI in state court on July 30, 2004 in Polk County, Florida. That suit proceeded to trial and the jury awarded a final judgment of $110,000,000 on July 10, 2010. As the Federal Judge noted in its ruling of March 14, that state court judgment from 2010 is “final, unstayed, uncollected, and unappealed.”

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In an astonishing display of arrogance and dishonesty, Rauner attempts to make voters believe that we’re still at the “what happened at the nursing homes” stage. That is simply not the case.

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Multiple courts and juries have already looked at the evidence and already rendered verdicts against the GTCR controlled THI. At one point those verdicts approached $2 billion in total awards.

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As Rauner well knows, we’re now at the “what happened to the assets” stage. Successful plaintiffs like the Estate of Juanita Jackson and others simply want to collect the judgments they are legally entitled to – but now GTCR and others are telling those plaintiffs and other creditors there’s nothing left to collect.

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That’s what the current case in U.S. Bankruptcy Court is about. Juanita Jackson’s estate and others had to go to Federal Court in an attempt to unwind all of the asset shuffling that occurred after THI started getting hit with massive state court verdicts. The plaintiffs allege there was a deliberate and unlawful scheme to hide assets which involved massive fraudulent transfers.

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The current federal litigation is all about GTCR and what happened there while Rauner was Chairman – and it doesn’t matter how many times Rauner dishonestly claims otherwise.

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A few other media outlets have reported on the March 14 Federal Court ruling – but no one else in Illinois seems to have read the 227-page Complaint to which the ruling relates.

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Included in that Complaint are devastating allegations that GTCR participated in a scheme whereby lenders and investors agreed to turn a blind eye to criminal conduct at THI, and in exchange the looting of THI’s assets was allowed to continue.

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And yes, this is all part of the Complaint which the Federal Judge allowed to go forward via his ruling of March 14.

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Paragraphs 170-218 of the December 19 Complaint describe in detail an alleged scheme to defraud the government of Medicare and Medicaid funds. The Complaint then goes on to allege a related scheme to make illegal campaign contributions which plaintiffs claim “was done on behalf of THI and with knowledge and approval of GTCR principals and THI and THMI board members, Jannotta and Budin.” (Compl. ¶ 224)

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The Complaint alleges that under the direction and control of Rauner’s GTCR and former GTCR principal Edgar D. Jannotta, Jr., THI inflated financials “to federal and state governments” to obtain monies “to which it was not lawfully entitled including Medicaid and Medicare monies.” (Compl. ¶ 173)

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Plaintiffs allege GTCR willingly participated in a scheme to conceal that “THI and THMI had been committing numerous illegal acts including Medicare and Medicaid reimbursement fraud but covered up the conduct.” (Compl. ¶ 167)

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The Complaint alleges certain investors, lenders, and real estate owners knew about the fraudulent reporting to state and federal governments, but agreed to keep quiet and did not inform state and federal authorities of THI’s wrongdoing. GTCR and Jannotta allegedly “consented to the unwavering control of GECC [General Electric Capital Corporation] and allowed Medicare and Medicaid funds intended for resident care to be paid to controlling lenders.” Plaintiffs essentially allege that GTCR allowed investors, lenders, and real estate owners to plunder the assets of THI. (Compl. ¶¶ 173-211, 248, 284, 695-699)

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And there is this: “[i]f either GECC or Ventas had disclosed the unlawful conduct, the THI Enterprise was almost certain to have lost its status as a Medicare and Medicaid provider, ending the very lucrative income that the THI Enterprise was generating for GECC, Ventas, and the other Defendants.” (Compl. ¶ 208)

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According to the Complaint, Jannotta provided testimony that the “business and operating decisions of the THI Enterprise had to be approved by the GTCR-controlled board.” (Compl. ¶ 106)

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On February 23, 2005, a GTCR board meeting was held to consider whether THI should file bankruptcy or undergo a “restructuring.” (Compl. ¶¶ 254-256) Plaintiffs claim that in late February 2006, GTCR’s “bust out” plan “was set into motion” resulting in substantial benefits to GTCR to the detriment of nursing home victims. (Compl. ¶¶ 290-394)

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Plaintiffs also claim GTCR and Jannotta “were notified of the liquidity crisis of the THI Enterprise created by the lack of resources, and the risk associated with the inability to provide minimum levels of care to its residents.” (Compl. ¶ 249)

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In the face of those warnings about unsatisfactory care at the nursing homes, Rauner and GTCR apparently did nothing – beyond lawyering-up.

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It is also important to note that these are certainly not wild accusations. A Federal Judge has already said so in largely denying a motion to dismiss. Further, plaintiffs have already noted in previous court filings that multiple forensic auditors (including former IRS investigators) were enlisted by plaintiffs in the litigation to perform multiple independently conducted audits and to help track the money transfers. That expert analysis is incorporated into the Complaint.

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Several reporters have commented on the complexity of this scandal. There is no doubt some complexity for the lawyers trying the cases in court – but the issues are actually pretty simple for this governor’s race which is being tried in the court of public opinion.


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

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