When the state of Kansas took over 15 nursing homes from New Jersey-based Skyline Healthcare last month, Katie Hizey wasn’t surprised.

But the former director of nursing for Neodesha Care and Rehabilitation Center said she was surprised that it hadn’t happened earlier.

Starting in November 2016, when Skyline took over the nursing home where Hizey worked, vendors didn’t get paid and staff paychecks would be direct deposited, taken back and then re-issued days later on paper checks, she said.

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"This is not a new issue for the company," she said. "And when vendors didn't get paid, we didn't get the things we ordered."

That included everything from food and utilities to lawn care and toiletries. That chaos and uncertainty is a big reason why Hizey left the nursing home last year.

"When Skyline bought them, they were not in long-term health care," she said. "They bought too big, too fast and basically set themselves up for failure."

Last month, the Kansas Department for Aging and Disability Services petitioned the courts to take control of Skyline's 15 nursing homes across Kansas, saying Skyline was on the brink of financial collapse and 845 nursing home residents were at risk.

Nebraska officials had taken similar action about a week earlier with 21 facilities owned by a subsidiary of Skyline.

Analysts and industry insiders say state regulators should have known Skyline was biting off more than it could chew and never should have let the out-of-state contractor — whose headquarters are above a pizza parlor in New Jersey — into Kansas in the first place.

Formed in 2008, Skyline grew exponentially as its owners took over operations of 110 nursing homes in six states between 2015 and 2017.

But according to court records, the company was struggling to pay its bills in other states even before it moved into Kansas and Nebraska.

Skyline spokesman Juda Engelmayer said two weeks ago that company leaders "intend to address all these issues within the next week or two."

"We know there are concerns; we're going to address them, and you'll hear more from us within the next week," Engelmayer said.

Skyline officials didn't return phone messages left last week.

Rarely do industries want more regulations, but Skyline’s struggles have even the nursing home industry itself saying that Kansas officials should require more information from people who apply for licenses. Otherwise, this is likely to happen again.

"I really think there needs to be a more intensive financial review for them coming in," said Cindy Luxem, the executive director of the Kansas Health Care Association. "Because I honestly don't believe the Skyline people had a year's worth of working capital."

It's unclear how much capital the company actually had to run the nursing homes, according to documents Skyline provided to the state. For each nursing home, there was a single-page document that showed projected revenue and expenses for only one month.

For some of the facilities, Skyline projected a negative margin of nearly 20 percent.

The Star asked for comment from Tim Keck, secretary of the Kansas Department for Aging and Disability Services, about his agency's role in allowing Skyline into the state.

In response, KDADS spokeswoman Angela de Rocha said via email that "the agency followed all state laws and regulations regarding nursing facility licensing."

Fast growth, then unpaid bills

When Skyline started snapping up nursing homes late in 2015, it surprised Stephen Monroe, a partner at a research firm called Irving Levin Associates that specializes in the senior housing and health care investment markets.

"They were a very small, kind of local operator," Monroe said. "No national presence, no nothing. And then all of a sudden, boom."

In two years, Skyline — through dozens of subsidiary LLCs — took control of dozens of homes in Massachusetts, Florida, Arkansas, Nebraska, Kansas and South Dakota.

Monroe said the company purchased some of them individually, but much of their expansion came from taking over operations from Golden Living, a large national chain that was sued by the Pennsylvania attorney general in 2015 for providing poor care.

"You had this Golden Living that wanted to lease out a lot of its nursing homes, and they found a willing tenant," Monroe said.

Monroe said Skyline may have seen a business opportunity, but it is debatable whether they were in any financial position to seize it.

"I was calling around and (asking), 'Do you know anything about Skyline? Do you know anything about Skyline?' " Monroe said. "I talked to one lender who said he gave them five minutes of his time and then said, 'No business here.' "

The company was owned by a single family, the Schwartzes (Joseph, Rosie, Michael and Louis), and Monroe said nursing home industry watchers used to joke about their office above the pizza joint in Wood-Ridge, N.J.

But Health Care Services Group, a nursing home vendor in Pennsylvania, wasn't laughing. HCSG had contracts with the homes Skyline acquired to provide things like housekeeping, laundry and dining and nutrition services.

Within months of Skyline taking over, the checks for those services stopped flowing, according to a federal lawsuit.

By the time KDADS licensed Skyline to start operating the 15 Kansas homes, HCSG had already ceased services to Skyline homes in Massachusetts, Florida and Arkansas because of missed payments.

An employee for HCSG said the company would not comment. But according to the court filings, Skyline owed them almost $1.7 million for five Arkansas facilities alone in August 2016.

Two months later, KDADS granted Skyline's owners the 15 licenses under the banner of two companies: Dorothy Healthcare Management and Great Plains Healthcare LLC.

South Dakota officials let Skyline into their state a few months after that.

Monroe said the warning signs were there had regulators taken a deeper look.

"The few of us who were suspicious when they started growing by leaps and bounds figured it was just a matter of time before they imploded," Monroe said. "And the time has hit."

William Murray III, an attorney with Wilkes & McHugh P.A. in Tampa, Fla., which has filed malpractice and neglect suits against Skyline nursing homes in several states, said the numerous LLCs associated with Skyline — like Dorothy Healthcare Management — are gimmicks.

“Oftentimes in the change of ownership process, new operators will create companies that have no track record and no history, even though the people behind them do, in order to escape any scrutiny about whether they’re qualified to take over the facilities," Murray said.

"Where are all the people who supposedly work on the second floor of a New Jersey pizza parlor? The people who are supposedly working for Dorothy Healthcare Management, taking care of all these frail, elderly Kansans?”

'A bad position'

For former administrators at Skyline's Kansas nursing homes, the company's brief presence in the state was troubling.

“It’s a group of good ol’ boys from the East Coast buying up a whole bunch of nursing homes in the Midwest because we’re the cheaper ones,” said Carol Tsiames, a former administrator at the Kaw River Care & Rehabilitation Center in Edwardsville, who left about eight months after Skyline took over.

“They abuse the system. Encourage you to use local vendors, and then they don’t pay. … It puts an administrator in a bad position.”

Sometimes, Tsiames said, she would go to the bank to cash her paychecks and they would bounce.

Once, a food vendor stopped delivering because they weren't paid, so staff had to buy bread for nursing home residents with petty cash, she said. But then the petty cash would run out.

“What their pattern is is they wait until the very last minute, only when they get to the point they’re going to shut something off, that’s when they’d pay,” she said.

Ronald Hicks, former administrator for the Edwardsville Care and Rehabilitation Center, another Skyline facility in that town, said he had never heard of the company before it bought the Golden Living facilities.

“I had to do a Google search to figure out who they were,” said Hicks, who left about six months after Skyline took over. “I had a lot of high hopes.”

But there were hiccups that started when the facilities transitioned from Golden Living on Halloween night in 2016, and they continued.

“I thought that companies had to be more prepared, and it doesn’t turn out that they do,” he said of state regulations.

“When that infrastructure from Golden Living went away, it made things very difficult, everything from payroll to the electronic medical records we used. We had to go to paper, and there’s a lot of mistakes that can be made. Of course, staff did everything they could to make it a smooth transition, but it’s hard to retain staff when they’re not receiving accurate paychecks.”

After Skyline took over the 15 Kansas nursing homes in 2016, 11 of those facilities were cited for deficiencies by health inspectors, according to public complaint data. Some of those deficiencies, inspectors wrote, constituted immediate jeopardy for residents or required admission bans and revocation of federal funding, including:

• At Eskridge Care and Rehabilitation Center, there were medication errors and residents wandering away from the facility.
  
  
• At El Dorado Care and Rehabilitation Center, the nursing home was cited for continuing to allow a staff member to work after allegations of verbal abuse, failure to train employees about abuse and neglect, failure to check references for new employees and inadequately preventing falls.
  
  
• At Edwardsville Care and Rehabilitation Center, the facility was cited for providing inadequate supervision and for a resident wandering away.
  
  
• At Wilson Care and Rehabilitation Center, the facility was cited for not verifying licensing for employees and not giving adequate supervision to prevent accidents.
  
  
• At Wichita Care and Rehabilitation Center, the facility was cited for medication errors and residents wandering away, including one who “accessed the unlocked therapy room, went out of the facility window and traveled on foot approximately 3 hours in the dark of night over 2.7 miles across heavily trafficked streets, intersections and across an overpass of a major highway.”
  
  

State takes action

The state petitioned for control of the Skyline homes after KDADS official Brad Ridley had several conversations with Joseph Schwartz starting March 26, according to court records filed by the state.

Schwartz told Ridley that the company was not going to be able to make its next payroll for about 950 employees in Kansas and didn't have enough money to "pay basic utilities and food service vendors."

By then, KDADS had also received several complaints that vendors had not been paid by Skyline and had seen that Nebraska regulators were also trying to take control of their Skyline homes.

Keck filed petitions to take over the Kansas homes on March 28, saying that the residents were “in immediate risk of irreparable injury, loss or damage."

The state enlisted another out-of-state nursing home chain, Mission Health, to help keep the Skyline homes running on an emergency basis while the court proceedings, known as receivership, continue.

The move doubles Mission Health’s operations in Kansas and increases its total operations, which include nursing homes in Georgia, Minnesota, Tennessee and Wisconsin, by about 50 percent. Mission Health is owned by Windward Health Partners, a Tampa-based private investment and holding company, which is a part of Skyway Group, a private investment firm.

“We are moving forward,” said David Loos, CEO at El Dorado Care and Rehabilitation Center in El Dorado, Kan. “We don’t have any admission bans. It’s just day-to-day operations as usual. There are plenty of supplies and food, and we’re carrying on with normal activity.”

Loos said Mission Health has taken over operations and that his facility had never missed paychecks or been without supplies, as the other facilities had.

Luxem said that once the state recognized the danger, it worked quickly to minimize harm. But it could have done more on the front end to vet Skyline, she said.

Luxem’s organization and LeadingAge Kansas, which represents nonprofit nursing homes, have both complained for years that delayed Medicaid payments have disrupted cash flow and made it hard for some homes to keep operating.

But Luxem said that wasn’t the main factor in Skyline’s fall.

“The people that own Skyline, they’re not health care providers,” Luxem said. “They’re merely people looking for an investment. Unfortunately, there’s a lot of that in our industry right now, but I wish the state of Kansas had a little bit better checks and balances on people coming into our state.”

State law currently gives KDADS broad authority to do that. The agency is allowed to deny a license to any applicant it determines is not “fit and qualified.”

But the agency’s regulations limit the amount of information it receives to make that determination.

KDADS requires applicants to provide a financial statement projecting the first month’s operating income and expenses with a current balance sheet showing at least one month’s operating expenses in cash or owner equity.

Monroe said “that’s the bare minimum” a state should require.

“One month to me is kind of bare bones, because on Day 1, you need to make payroll before you even get reimbursed through Medicaid and Medicare,” Monroe said. “So I would say one month would be bare bones if everything went well.”

Missouri requires companies applying for a nursing home operator’s license to project how it will meet payroll for at least 12 months.

Debra Zehr, the president and CEO of LeadingAge Kansas, said Kansas ought to require at least three months of operating expenses. Like Luxem, she said she was impressed with how quickly KDADS took action once it knew Skyline was floundering.

But she said the state is now sucked into labor-intensive legal proceedings and it’s not clear whether Mission Health, which will now operate about 10 percent of Kansas’ 300-some nursing homes, will be able to keep the Skyline homes running long-term.

And it all could happen again if changes aren’t made.

“I think this situation does point out the need for our state — and probably others, too — to really take a hard look at the criteria for permitting an out-of-state chain to come in and own or manage (nursing homes),” Zehr said.

“Especially large numbers of facilities. ... If the nursing home goes down, people and communities suffer.”

This story was originally published April 15, 2018 5:26 PM.