Comprehensive Healthcare: If sale of Western Pa. nursing homes is blocked, they may close

The embattled operators of 15 nursing homes in Pennsylvania said if they are not permitted to go through with the proposed sale of seven facilities in Western Pennsylvania, they may be forced to shut down, potentially displacing hundreds of residents.

Attorneys for Comprehensive Healthcare said in a court filing this week that selling the seven locations is essential.

“If the facility defendants are unable to transfer operations, it is likely they will run out of funds and be forced to close their operations,” they said.

The U.S. Department of Labor is attempting to block the $56 million sale, alleging that Comprehensive is attempting to unload assets before its trial over back wages and overtime. That trial was initially scheduled for this month.

Several administrators for Comprehensive face criminal charges, and the company faces separate allegations by the Department of Labor that it failed to pay employees at its facilities for working overtime or maintain accurate records of wages and hours worked.

The case was filed in 2018, and the government is seeking to recover as much as $40 million in unpaid back wages and overtime and potential damages.

In August, the Labor Department learned that Comprehensive was attempting to sell seven locations to Kadima Healthcare Group Inc.

The facilities involved in the would-be sale, which have a combined 747 beds, are: The Grove at Irwin, The Grove at Harmony, The Grove at Washington, The Grove at Latrobe, The Grove at New Wilmington, The Grove at New Castle and The Grove at Greenville.

The Department of Labor argues that the sale is an attempt to frustrate the government’s ability to recover the money sought in the labor claims. It is seeking an injunction to halt the sale.

Comprehensive’s attorneys said there is no authority for the government to block a sale to potentially satisfy a future debt.

On Wednesday, the parties appeared before U.S. District Judge William Stickman IV, who said he expects to have a decision on the issue within the next week.

During the hearing, three witnesses testified that they were told Comprehensive was trying to get the sale completed prior to the start of the labor trial.

Martha Stillwagon formerly worked at Comprehensive’s Mt. Lebanon Rehabilitation and Wellness as the human resources director.

She said she was at a dinner in August with a regional director for Comprehensive, Jim Schmerbeck, who told her and another friend that the company was planning to sell the seven nursing homes.

“Jim said the buildings were being sold, and he was going to lose his job,” Stillwagon said. “He was very distraught.”

She added that one of the owners, Sam Halper, who faces charges in the criminal case, said he “wanted the Grove buildings sold and gone before his trial started.”

Stillwagon said he was referring to the trial in the labor case.

“He doesn’t want to pay for it,” she recounted.

Comprehensive’s attorneys attempted to undermine Stillwagon’s credibility, noting that the company has a current civil suit pending against her and that she is a witness in the federal criminal case.

“I believe this is a biased witness,” Comprehensive attorney Jeffrey Schwartz told the court.

On cross-examination, Stillwagon said that she was paid $5,000 in cash by the U.S. Attorney’s office to provide testimony in the criminal case.

Stillwagon said she left her employment in 2019 because she could no longer stay in good conscience because her supervisors were demanding she commit Medicaid and Medicare fraud.

But, she continued, “I have no axe to grind. I have nothing to hide. I want it all out on the table so I can move on with my life.”

As part of the proceedings, Comprehensive submitted deposition testimony from another owner, Ephram Lahasky.

In that testimony, Lahasky said Comprehensive had been discussing a possible sale since December.

“These homes are losing an insane amount of money,” he said. “So we have to sell.”

The company, he continued, was having difficulty paying bills and vendors.

An initial potential buyer was rejected by the bank, Lahasky said, so he approached Kadima. He has a separate business relationship as a 5% owner in six facilities Kadima operates in eastern Pennsylvania.

They’d been in talks with Kadima since early this year, Comprehensive said, long before the labor trial was to start.

In his deposition, Lahasky said Comprehensive is not making any money from the sale.

“All we’re trying to do is get out of a situation where potentially these homes could fall apart, zero to do with the (Department of Labor),” he said.

While the government acknowledges that Comprehensive’s owners will not receive cash proceeds from the sale, the government attorney said they will benefit by the elimination of more than $20 million in personal liability for the current outstanding $46 million loan on the properties.

Alejandro Herrera argued to Stickman on Wednesday that Comprehensive is attempting to fraudulently dissipate its assets to stop potential collection in the labor dispute.

During argument, Stickman asked whether he has the authority to halt the sale.

The government said he does.

“The court has the ability to prevent fraudulent conveyance,” Herrera said. “The defendants are attempting to convey assets fraudulently on the eve of trial.”

He further argued that Lahasky’s interest in Kadima makes him an insider in the transaction.

“They are partners in another business. That partnership was the exact genesis of this deal.”

Schwartz said that claim is ludicrous. Although Lahasky went to Kadima because he had a relationship with them, the attorney said, the bank had to approve the transaction.

Schwartz argued that the public interest supports the sale of the facilities to avoid potentially displacing hundreds of residents.

“It’s certainly a nightmare scenario,” he said. “These homes are losing money month after month after month.”

In his own deposition, Halper reiterated that.

“I don’t know if there’s going to be any way for anybody to do anything about stopping these nursing homes from closing,” he said. “But it is very likely that in a small window of time, these nursing homes are not going to have any money.”