COLONIAL HEIGHTS, Va. — A Virginia nursing home appeared to "inflate" certain costs to get more Medicaid money from the government, an audit of the facility's financial filings suggested.
Auditors have discovered millions of dollars in unsubstantiated or disallowed expenses that were reported by Colonial Heights Rehabilitation and Nursing Center, but the nursing home is disputing the findings.
The for-profit facility has a one-star overall quality and staffing rating from the Centers for Medicare and Medicaid Services (CMS) and is currently at the center of an ongoing special grand jury investigation into alleged crimes that prosecutors said "seem to be developing into a pattern relating to the care" of residents. In response, the facility called the probe a "legal matter that has been highly sensationalized" and defended its "high quality of care."
Taxpayer dollars make up a majority of the nursing home's revenue, as most residents are insured through Medicaid or Medicare. All providers submit cost reports to regulatory agencies to show how those dollars are spent, and the government uses that information to set reimbursement rates.
Last year, CBS 6 reported that Colonial Heights paid rent to a related-party landlord under the same parent company. Some experts called the rent unusually high, while the facility said it reflected fair market value.
Now, CBS 6 has obtained an audit of the facility's fiscal year 2024 cost report, which was conducted by contractors for the state's Medicaid agency, the Department of Medical Assistance Services (DMAS). The audit was completed in July of last year but is still going through an appeals process.
Valerie Gray, a forensic account unaffiliated with DMAS or the facility, reviewed the audit documents and said they raised several concerns. After the auditors' changes, she said more than $4 million of the facility's $24 million in operating costs were unsubstantiated or did not meet regulatory requirements for reimbursement.
Related parties, management fees, 'excessive' bulk purchases called into question
The auditors removed more than $600,000 in excessive related-party management fees. Those payments, totaling over $1 million, more than doubled the allowable fee limit of $439,000.
DMAS said it suspects that money was paid to a web of nine different related-party entities, meaning other companies under common control or ownership as the nursing home. Those other companies include Medical Facilities of America Consulting, Heritage Consulting, LLC, Innovative Health Care Management, Forest Holdings, M&M Capital Holdings, Garden View Holdings, Vita Healthcare Group, MFA Heritage Consulting, and MFA Clinical Consulting, according to DMAS. Colonial Heights did not disclose any of these entities as related parties on its submitted cost report.
"You can't charge yourself more than the fair market value of the goods and services that you're providing to the nursing home, which is yourself, if you own the management company and the nursing home," Gray said.
Colonial Heights' legal counsel denied the related-party connections in an appeal of the audit, but DMAS maintained the facility did not provide sufficient documentation to support that denial.
The audit also removed about $117,000 in consulting fees and $448,000 in related-party employee health insurance expenses, because the facility did not provide sufficient third-party documentation to justify the costs.
It also removed $544,000 in interest on owner loans that auditors treated as an equity investment rather than a loan.
"I've never, ever heard of anybody in my 30 years of doing accounting, charging interest for an equity investment," Gray said. “You could charge interest if you made a substantial loan, and you're getting interest off of the loan, but you don't earn interest on equity.”
One of the most significant findings is that auditors disallowed nearly $2 million in "excessive bulk purchases" from a New York-based supplies vendor that may not have been fairly priced or properly recorded.
Auditors said the bulk purchase expenses appear to have been made "solely to inflate costs during a rebasing year." The auditors noted that this 2024 cost report would be used to set the Medicaid payments for the next three-year cycle, meaning "any artificial inflation of costs" could lead to "inaccurate rate-setting and overpayment."
Further, the auditors were concerned about multiple facilities in the same chain that made similar purchases on the same dates, totaling close to $10 million. They said, "further documentation is needed to assess the validity, pricing, and appropriateness of these purchases."
The provider's notice of appeal and initial response did not go into detail to address this adjustment, and a spokesperson for the facility did not answer CBS 6's inquiry about it.
Lawmaker calls for more financial scrutiny
"It would appear from the audit that DMAS did that they are creating all of these opportunities of self-dealing, to be able to pay themselves for lots of different things, basically pick whatever price they want, and then expect to get reimbursed by the state for it," said Republican Senator Glen Sturtevant, whose district includes Colonial Heights Rehab and Nursing.
Sturtevant said the state should audit all 36 other nursing homes in the same chain. DMAS tracks the facilities under the Innovative Healthcare Management chain, while federal records list them under the Lifeworks Rehab chain.
"I think that that's something that they need to be pressed on to make sure that they're doing the regulatory oversight and enforcement that we have directed them to do and given them the power to do," Sturtevant said.
DMAS said all nursing homes in the chain were subject to the same "annual cost settlement process." However, when CBS 6 submitted a public records request for audits of the Richmond metro facilities in the same reporting year, the agency said no records existed. DMAS spokesperson Kedra Keith has not clarified why those records don't exist if all nursing homes were subject to the same audit process.
Keith said the adjustments auditors made to Colonial Heights' cost report are under administrative appeal. When CBS 6 requested records pertaining to the outcome of the appeal, the agency said no records existed. Keith has not answered questions about where exactly the case stands in the appeals process.
DMAS has not attempted to recover any money associated with the disallowed expenses because Keith said, "current payments to the provider are not based on the FY2024 cost report." Rather, the agency will just not consider the disallowed expenses when setting future reimbursement rates.
Colonial Heights' appeal said DMAS' adjustments reduced the nursing home's rates by $5.3 million.
When asked for a response to the audit, facility spokesperson Mindie Barnett said, Colonial Heights "has invested significant resources, both in terms of physical enhancements and new staffing over the past 18 months at our facility."
The rest of her statement criticized CBS 6's reporting, saying, "your news outlet has shown a pattern of taking outdated, cherry picked, and false information to continue a narrative that is very critical of the nursing home industry that provides quality care to more than 28,000 Virginia residents daily."
Barnett did not specify the "false information" when asked.
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