Worried about the possibility of a second bankruptcy in the future, residents at the Covenant at South Hills are supporting a nonprofit bidder looking to buy the Mt. Lebanon continuing care facility.
A competing for-profit bidder insists its finances are sound.
Charles W. Prine Jr., who chairs the Official Committee of Unsecured Creditors appointed by the U.S. Trustee to represent the Covenant residents, issued a statement this week saying most residents favored Concordia Lutheran Ministries over Lifecare of the South Hills, LLC, an affiliate of West Virginia-based The Orchards at Foxcrest, for several reasons, starting with money.
“The reasoning is that Concordia is a successful non-profit operator, who would be buying the Covenant in a cash deal with funds from its very substantial endowment, whereas Foxcrest, a for-profit corporation, would have to borrow millions of dollars to finance the deal,” Prine wrote.
He added: “It appears that the interest and promised dividend to investors would also run into the millions every year for Foxcrest, which would make it more difficult to operate the facility on a break-even basis.”
Maury Deul, president of the Covenant’s Residents Council, said the statement accurately reflected the views of most of the Covenant’s residents.
Meanwhile, a small group of residents question sale to either bidder.
Scott Fox, CEO of Foxcrest, said he was “disappointed and surprised” by the residents’ statement, but not delivered, “It doesn’t change our position one way or another,” he said.
He also disagreed with several assertions made in the statement.
“The net worth of our partners is extremely substantial,” Fox said. “We would have no risk of going into bankruptcy.”
Fox added that he expects to have the financing needed for Lifecare’s $17 million bid in place by the bankruptcy court’s Aug. 24 deadline.
The auction for the Covenant is scheduled for Sept. 3.
In the statement, Prine said groups of Covenant residents “were welcomed graciously during tours of both the Concordia community near Saxonburg, and the Foxcrest community at Chester, W.Va.,” and that the residents were “impressed” with the managers of both entities when they made presentations to the residents.
“Nevertheless, the residents, who will lose millions of dollars of deposits in the bankruptcy proceeding, believe they will be at greater risk of another bankruptcy with Foxcrest than with Concordia,” the statement said.
Regardless of which group wins the bidding war, residents stand to lose hundreds of thousands of dollars each in fees paid to purchase living units and the assurance of long-term health care at the Covenant. According to their contracts, a large percentage of those deposits — in some cases up to 90 percent — were to be refunded to the residents if they left the facility.
In addition to financial concerns, Prine’s statement also said that residents are concerned about the Medicare ratings of the two entities, noting that “the Covenant has one of the few five-star ratings in the Pittsburgh area, which we hope will be maintained under new management.”
As of July 21, 2008, Medicare gave a five-star rating to a Concordia-run facility. As of June 18, 2008, the office gave a two-star rating to a Foxcrest run facility.
Fox said the Medicare rating system is misleading.
“The Medicare star ratings are so arbitrary,” Fox said. “If you add the numbers up, you can’t see why one’s a five star, and one’s a one star.”
For instance, Fox said, Concordia received five stars for “Health Inspections,” two stars for “Nursing Home Staffing” and three stars for “Quality Measures,” but received a five star “Overall Rating.”
Fox also noted the differences in state requirements for Pennsylvania and West Virginia.
“You’re not comparing apples to apples,” he said. “Some states are harder than others.
Fox noted other perceived inconsistencies, saying the rating system doesn’t consider acuity — the severity of some patients compared to others — or standards of care, such as Foxcrest’s policy to admit and treat patients with pressure sores when other facilities won’t, or its policy to indentify and treat patients with depression or anxiety, even if it makes the facility appear to have higher incidents of depression.
“We treat people the way that we would want to be treated, and the way it translates for quality measures is that it makes us look bad,” Fox said.
In the statement, Prine said that residents also worried about Lifecare’s proposed model for bringing in residents.
“Foxcrest has indicated it intends to concentrate on marketing a rental program for the independent living apartments in contrast to the current ‘continuing care’ program,” the statement reads. “The latter program guarantees nursing or assisted living care on a pre-paid discounted fee basis when needed by the independent-living residents. Some residents believe the Foxcrest approach will result in a de-emphasis of the concept of a ‘continuing care’ residential community.”
Fox said that it isn’t an either-or proposition.
“The process that we’ll use to get people into the building, out of necessity, is a rental community,” Fox said. “No one in their right mind will put down $250,000 into a company that’s coming out of bankruptcy. And we’re still going to provide continuing care; people will just have to pay for it in a different manner.”
Fox added that his company would continue to honor the life care provisions in the contracts of all current residents.
While the Prine statement purports to offer the view of most residents, several residents have hired attorneys who now question the sale of the Covenant to either Lifecare or Concordia.
“We’re not supporting the Foxcrest and Concordia deals because they don’t seem to recognize that the residents’ rights are superior to the secured creditors,” said Howard Louik, attorney for six Covenant families. “And it is our hope that a Jewish agency will eventually come in and run it.”
Rather than a sale to a non-Jewish entity, Louik’s clients hope the bankruptcy court approves a reorganization plan.
“The main thing that’s keeping the facility from being successful is that no new residents are coming in with the financial uncertainty,” Louik said.
Louik said that other states have escrow laws in place that protect the deposits of residents of continuing care facilities such as Covenant. Pennsylvania has no such law.
“It’s a shame that the state has not implemented these sorts of laws,” he said. “It’s a failure of regulation, as well as a failure of B’nai B’rith.”
To read the complete statement and to learn more about the Medicare rating system, visit thejewishchronicle.net
(Toby Tabachnick can be reached at firstname.lastname@example.org.)