Dozens of Nursing Homes With HUD-Backed Mortgages Have ‘Serious Deficiencies’

By Matthew Goldstein and Robert Gebeloff

ImageA Rosewood Care nursing home in Inverness, Ill. The company’s collapse last year was the biggest ever of a Department of Housing and Urban Development program that insures the mortgages of more than 2,300 such homes.
A Rosewood Care nursing home in Inverness, Ill. The company’s collapse last year was the biggest ever of a Department of Housing and Urban Development program that insures the mortgages of more than 2,300 such homes.CreditCreditDanielle Scruggs for The New York Times

Dozens of the worst-run nursing homes in the United States have mortgages guaranteed by a federal agency that mostly stopped inspecting such homes several years ago.

Seventy-four nursing homes with mortgages insured against default by the agency, the Department of Housing and Urban Development, are among 478 homes identified this month by two United States senators as having “serious deficiencies.”

That dozens of taxpayer-backed homes appeared on the list reflects the federal government’s spotty history of monitoring for-profit nursing homes that can use the housing agency’s backing to obtain more favorable terms from lenders. The agency’s inspector general has criticized the oversight of nursing homes that belong to the program, known as Section 232, and last month the chairman of the House Ways and Means Committee asked the agency to reinstitute the property inspections, which were largely discontinued in 2012.

The mortgage insurance program is a vital financial lifeline to the nursing home industry, but some people contend that the program must do more to ensure better business practices.

“These homes are causing harm and neglect to their residents,” said Charlene Harrington, a professor of nursing and sociology at the University of California, San Francisco. “So the fact that HUD is propping up these bad operators is very sad.”

The 74 homes with HUD guarantees have been labeled “special focus facilities” or are eligible for the designation and admission in a program under which the Centers for Medicare and Medicaid focuses intensive oversight on homes with a “documented pattern of poor care.”

The program, however, is open to only 88 of the nation’s 15,500 nursing homes at a time. Medicare has long published the names of the nursing homes in the program, but not the longer list of those that are eligible for inclusion.

To promote transparency, Pennsylvania’s senators, Patrick Toomey, a Republican, and Bob Casey, a Democrat, this month published a list of the participating homes and nearly 400 others that are considered eligible, although it did not specify which had mortgages backed by HUD.

The housing agency guarantees just over $20 billion in mortgages at 2,368 nursing homes, or about 15 percent of the industry. The department said that a nursing home designated as a special focus facility by Medicare officials cannot qualify for a new guaranteed mortgage. It declined further comment.

Some nursing-home owners and operators — including Genesis Healthcare, a publicly traded company that manages 400 nursing homes across the country — had multiple properties with HUD guarantees on the worst nursing homes list. Nine Genesis homes were on the list, including one in Deer Lodge, Mont., with 60 beds that racked up $720,000 in fines from health regulators in the past two years. The Genesis homes owe a combined $90 million on their HUD-guaranteed mortgages.

Lori Mayer, a Genesis spokeswoman, said that the company was “always striving to improve quality and performance at all of our locations regardless of financing source.”

The HUD program experienced its biggest default in August, when the owner of the Rosewood Care Centers chain was unable to make payments on $146 million in mortgages. Since then, HUD has run 13 Rosewood facilities while reviewing bids from prospective buyers.

Rosewood’s collapse underscored the HUD inspector general’s complaints about lax oversight of the program, including slow responses to homes’ financial problems and a failure to require timely filing of financial reports.

Under Medicare’s five-star system for rating a nursing home’s safety and care, 43 percent of the nursing homes supported by the HUD program have a 1- or 2-star rating, compared with 37 percent of those that do not have loans backed by HUD.

HUD discontinued most of its physical inspections in 2012, saying the effort duplicated efforts by federal and state health regulators.

Last month, Representative Richard E. Neal of Massachusetts, a Democrat and the chairman of the House Ways and Means Committee, sent a letter to HUD asking that it restart the inspections. Doing so, Mr. Neal wrote, would ensure the “safety, dignity and well-being of nursing home residents” and protect taxpayers from a default.