COLONIAL HEIGHTS, Va. — Two state lawmakers stand ready to take action after CBS 6's investigative reporting on a troubled nursing home in their district highlighted what they believe are gaps in Virginia's oversight system of care facilities.
"Somebody's got to step in and say, 'We're going to fix this,'" said Republican Senator Glen Sturtevant.
"This is just the tip of the iceberg in terms of what many of these facilities are doing, and the lack of care that's being provided to our most vulnerable citizens," said Republican Delegate Mike Cherry.
As Colonial Heights Rehabilitation and Nursing Center was put at the center of criminal investigations connected to alleged inadequate care, CBS 6 took a deeper dive into its performance and financial history.
According to federal data, the facility is a 1-star, low-staffed, for-profit nursing home operated by Medical Facilities of America (MFA). According to the state health department, MFA was acquired in 2021 by a company with a mailing address listed in New Jersey.
CBS 6 obtained the facility's cost reports that were submitted to state and federal regulators which showed how the nursing home was spending Medicare and Medicaid dollars. What the reports revealed caused concern for Senator Sturtevant and Delegate Cherry.
"There's something financially there going on that that doesn't look right," Sturtevant said.
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Experts who reviewed the cost reports pointed to "highly unusual" and "extremely large" rent payments to a related party— that is, another company under common ownership as the provider.
Records showed that one entity owns both the nursing home operating company and a real estate company that leases the property back to the operator. According to the cost reports, the price of rent increased significantly from $2.6 million in 2022 to $6.1 million in 2024.
While analysts said that the transaction likely generated profit for the parent company, it ultimately appeared as an expense on the cost report, contributing to what the provider claimed as an $89,000 overall financial loss that year.
"When you see those kinds of numbers coming through a facility like that, and then realize that they're ultimately paying themselves, it's almost a sense that they're cooking the books," Cherry said.
"And then you compare that to see where the money is going, and they claim it's being spent in rent, but that's a lot of money that is not going to hiring more doctors, more nurses, paying the folks better so they can get quality care providers to work at this facility," Sturtevant said.
Spokesperson for Colonial Heights Rehab, Mindie Barnett, previously told CBS 6 the rents "are believed to be fair market value, and all governmental filings were submitted by qualified professionals who are not identified in any irregularities." But according to the Virginia Medicaid agency's fair market value rates, if every resident in 2024 was a Medicaid member, the facility would receive around a $1.8 million capital reimbursement.
Related party transactions are not unique to Colonial Heights.
Recent research, including a report and guidance from a federal inspector general's office, has suggested that some nursing home owners and private investors do not properly disclose or adjust these costs, resulting in overstated expenses and underreported profits, which can typically appear in real estate transactions. Because of this concern, the legislative branch agency that advises Congress on Medicaid has recommended that states collect more data on related party transactions.
"I think there's an industry-wide problem. The gaps in laws that have allowed what's happened in Colonial Heights— I think those same gaps exist throughout the Commonwealth," Cherry said.
WATCH: Colonial Heights nursing home fined $1,300 per day amid new violations of care standards
Some states have already tried to crack down on those gaps by tightening financial reporting requirements.
For example, New Jersey passed a law in 2020 that required facilities to report the ratio of revenues spent on direct patient care, and anything less than 90% has to be returned. As part of the requirements, facilities must also provide an in-depth analysis that proves the amounts being paid to related parties do not exceed what would have been paid to unrelated parties.
"That legislation was recently brought to my attention, and I think it certainly has some merit. I would love to explore that a little bit further and see if that's something that we can get accomplished here in Virginia," Cherry said.
Virginia's Medicaid agency, the Department of Medical Assistance Services (DMAS), is responsible for reviewing cost reports. DMAS spokesperson Kedra Keith said all of the agency's current authority related to facilities' financial reporting is within the context of setting reimbursement rates, and it does not broadly oversee business practices.
Current regulations state that related party transactions should not exceed market value, and DMAS performs desk reviews and audits when necessary to identify and verify the accuracy of related party costs. Specific to real estate transactions, Keith said DMAS does not even consider the actual cost paid by the facility for rent, because the agency uses a fair rental value accounting principle to reimburse appropriate capital-related costs.
When asked what kind of information would trigger further financial scrutiny from DMAS, Keith said, "An audit or investigation of related-party costs will be initiated if DMAS identifies inconsistencies, unusual transactions, significant cost fluctuations, or other indicators that suggest potential overstatement of expenses or failure to disclose a related-party relationship."
While DMAS previously told CBS 6 it was inquiring whether Colonial Heights Rehab and Nursing accurately disclosed all of its related-party transactions, the agency said it could not disclose information about any active audits. When CBS 6 requested previous audits of the facility, the agency said no records existed.
The two legislators said they're also interested in enhancing ownership transparency and scrutinizing the state licensure process in an effort to more thoroughly vet the people applying to operate nursing homes in Virginia.
“Something I've seen in my law practice is you'll have these nursing homes that are owned by lots of different shell companies," Sturtevant said. "But identifying who is ultimately responsible for ownership of these facilities is very, very difficult, and the federal database is very inadequate.”
"Should we expect to see some bills being proposed in the near future from you guys?" reporter Tyler Layne asked both lawmakers.
"I think you'll absolutely see some bills in the next legislative session," Cherry said.
"I think we're also going to look at legislation that is going to try to unravel some of these bookkeeping tricks that, at least in Colonial Heights and probably elsewhere, are being used to siphon off money, taxpayer dollars, into profits, as opposed to being put into the nursing facility to provide better care," Sturtevant said.
Share your nursing home stories with the CBS 6 Investigative Team: Email Melissa Hipolit and Tyler Layne
CBS 6 also requested an interview with the Virginia Health Care Association, the lobbying group that advocates on behalf of the interests of the industry.
Spokesperson for the organization Amy Hewett sent a statement that said VHCA "supports financial transparency" and encourages "a proper balance of oversight while still encouraging more investments in our healthcare system."
"The truth is that because long-term care is chronically underfunded, ancillary services and related parties sometimes help keep these facilities viable. If we want to transform Virginia's nursing homes, then we need to focus on proper investments and collaborative policies that will help them prepare for a growing elderly population," Hewett said.
Federal lawmakers, with an interest in how the Centers for Medicare and Medicaid Services (CMS) regulates the industry on the federal side, have also responded to CBS 6's reporting. In cost reports submitted to the federal government, Colonial Heights Rehab and Nursing did not disclose the related-party real estate transactions that it did on the state cost reports.
Republican Congressman Rob Wittman and Democratic Senators Tim Kaine and Mark Warner sent a letter to CMS in which they called on the agency to strengthen its oversight and expressed concern over its practice to not analyze related-party costs during cost report desk reviews.
"Medicare needs to hold these facilities accountable," Rep. Wittman previously told CBS 6. “These individuals have paid, through their lifetime, into the Medicare system. The expectation is that they are going to get quality care for the dollars that are being paid. That's the accountability. The transparency is being able to show exactly how are those dollars being utilized, and if they're not utilized for patient care, then I think there's a problem.”
CBS 6 is committed to sharing community voices on this important topic. Email your thoughts to the CBS 6 Newsroom.
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