A nursing home chain grows too fast and collapses, and elderly and disabled residents pay the price

NEW BEDFORD, Mass. — Once a week for two years, police Lt. Jeannine Pettiford had visited the nearby nursing home where her 52-year-old cousin with cerebral palsy lived. But on their daily phone call in early May, her cousin had bad news.

“I’m getting kicked out,” he told her.

In disbelief, Pettiford asked to speak with a nurse, who told her there were rumors of closure. Her alarm rose when she visited the facility and saw nurses crying. The nursing home’s owner, Skyline Healthcare, had told its staff there was no more money.

Skyline’s four other nursing homes in Massachusetts were facing the same crisis. Funds were so short, staff had begun buying toilet paper with money from their own pockets, according to former employees. Residents and their families discovered from local newscasts they had just 30 days to find somewhere else to live.

“Nobody from the nursing home ever called me to tell me,” Pettiford said. She was angry. And, she later learned, so were many others.

At its peak, Skyline Healthcare owned or ran more than 100 facilities in 11 states, overseeing the care of more than 7,000 elderly Americans. But during the past two years, the chain has collapsed, and more than a dozen Skyline-operated nursing homes have shut their doors, throwing residents, vendors, employees and state regulators into chaos.

Terri ThompsonHannah Rappleye / NBC News

Many homes ran out of money. Others were shut down over neglect documented in government records. Fourteen homes were forced to close permanently, displacing more than 900 residents to new facilities, sometimes hours away.

The story of Joseph Schwartz and Skyline Healthcare is one of swift expansion, alleged mismanagement and catastrophic failure. An NBC News investigation reveals the scale of the Skyline debacle, in which one man built an empire that quickly crumbled, with painful consequences for vulnerable people.

It also shows the failure of state and federal authorities to keep up with just who owns and runs America’s nursing home facilities, which house 1.3 million elderly and disabled Americans — about three-quarters of them in beds paid for by taxpayers via Medicare and Medicaid. The states are responsible for tracking ownership and conditions at nursing homes within their borders, but only the federal government can monitor the performance of firms that own or operate facilities across the nation. The allegations of negligence at a major nursing-home chain come as the Trump administration is moving to ease, not increase, accountability for the industry, reducing penalties and terminating fewer contracts with problem owners.

Schwartz, meanwhile, still has ownership stakes in 53 nursing homes, according to federal records. He has not returned multiple messages and emails requesting comment from NBC News.

“I just don’t think I’ve ever seen anything like it,” said Stephen Monroe, an industry analyst of three decades who is the managing editor for the nursing home trade magazine Senior Investor. “I have no idea what that family was thinking. To go from 10 to 100 in two years with no real back office? I looked at that and said from day one, ‘Impossible.”

‘The Home Life You Crave’

A Brooklyn, N.Y.-based insurance broker and landlord, Joseph Schwartz entered the nursing home business more than 10 years ago after he sold a Florida-based insurance company.

In a 2017 deposition for a malpractice lawsuit filed by a family alleging neglect at one of his homes in Pennsylvania, Schwartz explained why he’d gotten into the industry. “”Basically, I used to do a lot of servicing in selling insurance policies to long-term care industry,” he said, “and I felt that I could, that I understand the quality care … and I will do a very good job in doing the quality care for residents.”

Joseph Schwartz listed a tiny office above this New Jersey pizzeria in Wood Ridge, New Jersey, as the location where he ran over 100 nursing homes nationwide.NBC News

He started with a half dozen homes, but after creating Skyline Healthcare he began expanding rapidly in November 2015 with the purchase of 17 homes.

Schwartz ran Skyline out of a tiny office above a New Jersey pizzeria. He was CEO, his wife Rosie co-owned most of the properties and his two sons, Michael and Louis, served as vice presidents. The company had a bare-bones website and a slogan, “Skyline: The Home Life You Crave.”

During the 2017 deposition, he said, “Skyline is an entity that is me.”

His net worth is hard to compute but real estate records show he owns over $9 million worth of real estate in the New York metropolitan area, including a gated house in Suffern, N.Y.

Within a year of his purchase of 17 nursing homes, Schwartz had taken on another 64, and by 2017 was operating more than 100.

Schwartz wouldn’t provide a number when the plaintiff’s attorney asked him repeatedly in June 2017 how many homes he ran. He confirmed it was more than five, but asked if it was more than 100, he said several times that he couldn’t recall.

Joseph Schwartz speaking to lawyers during a sworn deposition in June 2017 for a neglect case he settled. He told the lawyers, “All our facilities are very, very, very, very compliant with all clients. They all have every program that’s necessary for patient care.”Ace Reporters

With more than 100 facilities, experts estimate Schwartz would have been juggling a few hundred million dollars a year in taxpayer money from Medicare and Medicaid.

But problems had emerged quickly. Within six months of Skyline’s entry into the Arkansas market in 2015, the state’s attorney general was investigating reports of neglect in Skyline facilities.

Marcela Watkins, who visited her mother daily in Spring Place Health and Rehab in Little Rock, said the food went downhill once Skyline took over. She recalled staff serving raw vegetables and boxed pizza to elderly patients.

“It’s a money-making business,” she said. “And guess who doesn’t get the care? Our loved ones.”

Karen Coats’s 57-year-old brother Donny Owens fell at another Skyline Arkansas facility in 2017, heavily bruising his face. She said he laid on the floor for 45 minutes before staff found him.

Coats said staffing was a “revolving door” and that she frequently complained, though little changed.

The state attorney general later issued Skyline facilities more than $200,000 in civil fines for neglect, preventable falls, failure to bathe residents and maggots in a resident’s personal medical equipment.

In Massachusetts, staff say the Schwartz sons visited the properties before taking over, promising new resources. But cuts started within a year.

Certified nursing assistants were reduced from five to three, according to ex-employees. Staff were told that disposable briefs would be rationed to two per patient per shift, instead of as needed, meaning patients were left to languish in their own body waste. One former head of nursing told NBC News that management offered giveaways to smooth over the changes.

She said she told them, “I don’t want a [free barbecue] grill, I want to save the staff I have on the floor.”

As problems mounted, Skyline continued to expand. In 2017, it entered South Dakota.

Schwartz reportedly leased at least half of the homes he operated around the nation from Georgia-based Golden LivingCenters, according to local news reports and property records, which acted as Schwartz’s landlord.

Last year Skyline released a statement to a South Dakota reporter blaming Golden for problems in its South Dakota nursing homes. Skyline said the chain was “dedicated to providing quality care” and meeting its obligations, but that Golden had caused the issues.

Monroe, the analyst, said landlords like Golden hold some responsibility. “How did they not do their due diligence to [vet Skyline]? That is a mystery.”

A spokesperson for Golden LivingCenters conceded the company contracted with Schwartz to run 17 homes in South Dakota but would not comment on other states. The spokesperson also declined to answer if the company vetted Schwartz, saying, “He convinced a lot of people in a lot of states. He ran a big scam.”

By September 2017, Skyline had taken over Ashton Place, a nursing home in Memphis, Tenn. Less than two months later, a resident with a recent leg amputation was taken from the nursing home, where he was found lying in feces, to a hospital, where nurses discovered maggots and gangrene in his leg, according to the police report obtained by local NBC affiliate WMC. His death two days later prompted a state investigation, which revealed the man had not had his dressing changed for two days. Staff said problems arose in part when Skyline told nurses to abandon electronic medical records and go back to paper record keeping.

The Ashton Place Rehabilitation and Care Center in Tennessee.NBC News

During the investigation, the company’s medical director told inspectors, “I have no support, no direction.”

A spokesperson for the state agency that approved Schwartz’s takeover of Ashton Place said while Skyline had faced problems in other states, that did not disqualify it from operating the Memphis nursing home.

A month after the death, the Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees the nursing home industry, terminated Medicare certification for the facility and another Skyline property in Tennessee. It terminated a third in the state in 2018.

According to a CMS spokesperson, “Each individual facility is separately certified and held accountable for compliance with CMS minimum health and safety standards.” The spokesperson adds that “CMS has limited authority to intervene when a facility is struggling financially.

Collapse

The government, and taxpayers, were paying for Skyline’s rise.

Industry analysts say nursing homes are on the decline as other options, like assisted living, emerge. The number of residents has fallen from an estimated 1.5 million in 2010 to 1.3 million in 2015. But they also say a “silver tsunami” of baby boomers in their 80’s may be on the horizon.

For the time being, residents in nursing homes are likely to be poor, vulnerable and on Medicaid, which is paid for by federal taxes.

But despite being subsidized by the government, as he took over more homes, Joseph Schwartz was racking up debts.

Former staff at Skyline nursing homes say Schwartz would bring in a vendor, let the bills stack up, then find another vendor and do the same thing again.

During the June 2017 deposition for a lawsuit alleging neglect at a Schwartz-owned facility in Pennsylvania between 2012 and 2014, which he later settled, plaintiff’s attorneys asked about unpaid bills and bounced checks. Schwartz insisted that he paid “everybody.” But he also said there could be reasons for not paying contractors, including unfinished work. “Because a guy sends a bill in doesn’t mean he needs to get paid,” said Schwartz.

With residents running out of food, several states began to take extraordinary measures. Starting in March 2018, Nebraska and then Pennsylvania assumed control of some Skyline facilities and assigned third parties to run them.

South Dakota was next. In April 2018, Debbie Menzenberg, a local Skyline administrator, sent a panicked email to the state agency responsible for nursing homes, claiming Schwartz’s son was telling her the company had no money.

Donny Owens, a resident at a Skyline nursing home in Hazen, Arkansas, fell and bruised his face. According to his sister Karen Coats, Owens called for staff for 45 minutes before they came to help him.Karen Coats

“I just had a call from Louis Schwartz,” she wrote in the email, which was later produced in court, “there is no money — he told me to discharge residents????” Later she wrote, “I need water paid at Bella Vista and Prairie Hills today or it will be SHUT OFF – Skyline is SILENT!!!”

During the 2017 deposition, Schwartz repeatedly defended the quality of care at his nursing homes, saying he tried very hard to do “whatever is needed” for residents, but seemed reluctant to talk about what he was doing with money from the homes.

The attorney for the plaintiff pressed Schwartz on whether he took cash from the facilities. He said he did, but his lawyers objected to questions about how often he took money and whether he made the decision. Schwartz then said he would take the money as needed, and would listen to the recommendation of his CFO, but would ultimately make the decision himself.

The plaintiff’s attorney then asked Schwartz how much money he took out of the Pennsylvania home where the neglect was alleged.

“Those draws, for example … they could amount to over a million dollars over the course of a year?”

“Could be,” answered Schwartz.

“Now, when you’re taking out draws,” asked the lawyer, “that does take away from some of the cash on hand at the facility to operate?”

“I don’t think so,” said Schwartz.

Who is responsible?

Advocates and analysts are still wondering how Schwartz’s empire was allowed to grow so large so quickly, without any state or federal authorities appearing to sound an alarm bell.

The nursing home industry is turbulent, with frequent ownership changes — one of the homes Schwartz took over in Arkansas had five owners in just six years.

While states are largely responsible for determining if a new owner is financially suitable, the process varies dramatically state by state. In Arkansas the process doesn’t even require the new owner to submit financial statements.

The federal regulator, CMS, is the only oversight agency with a birds-eye view. Each time a nursing home anywhere in the country changes hands, the company has to submit a form to CMS, a regulation introduced as part of Obamacare.

A CMS spokesperson, however, told NBC News that the agency is not responsible for assessing an owner’s finances, “CMS authority over nursing homes relates to compliance with health and safety requirements, not their well-being.”

But CMS staff can review ownership patterns, said Alice Bonner, who served as the director of the division of nursing homes for CMS during the Obama administration.

“We would have conversations about the change in ownership,” she said. “We picked up on things like that.”

The Trump administration has taken a different approach to oversight. While extreme instances of neglect at Skyline facilities were stacking up, the administration was reducing fines for troubled nursing homes.

In early 2017, the nursing home industry’s trade group sent President Donald Trump a congratulations on his election victory and asked for a series of regulatory changes. One request was a reduction in fines.

Six months later, the administration began implementing a rollback in nursing home fines. Regulators are now encouraged to use one time fines instead of daily fines. That’s led to a 34 percent drop in overall penalties for problematic nursing homes between 2017 and 2018.

CMS says the change was to make punishment “fairer, more consistent and better tailored to prod nursing homes to improve care.”

David C. Grabowski, a professor of health care policy at Harvard Medical School, disagrees. “For those more serious deficiencies it’s important to hold them accountable rather than a one-time fine,” he said. “The idea that a $10,000 fine will change their behavior, I don’t believe that.”

A CMS spokesperson told NBC the agency “is committed to protecting nursing home residents to the fullest extent within the agency’s legal authority to set and enforce safety and quality standards.”

The number of nursing home contracts terminated by CMS has also declined. Between 2014 and 2017 the agency stopped payments to 14-18 homes annually. In 2018, that number dropped to just three. There have been four terminations so far this year.

CMS says the drop in terminations is not the result of a policy change.

Toby Edelman is the senior policy attorney at the Center for Medicare Advocacy, a non-profit that works to improved access to health care for the elderly and disabled. Edelman says the collapse of Skyline is a warning. “We need to have very strict rules about who’s eligible to operate a facility, what the standards are, what their financial backgrounds are,” said Edelman. “And if the facility did a bad job in one place, it’s not likely to do a good job in another facility. Why do we want to give them more?”

The Aftermath

Today, Schwartz is busy fighting more than a dozen lawsuits from residents’ families alleging neglect and claiming he siphoned money out of the nursing homes. His lawyers have denied those allegations in court.

His office above the pizzeria is shut down. Litigants in these cases have spent tens of thousands of dollars attempting to serve him at his Suffern address, but he’s rarely home.

Nurses have had to find other jobs. In late June the Massachusetts AG fined Schwartz nearly $85,000 for withholding pay from employees.

Bedford Village Nursing Home, a former Skyline facility in Massachusetts was shut down by the state, displacing over 60 residents.NBC News

Yet the Skyline saga is not over. Last year a Skyline spokesperson told reporters the company “had been working to transition out of the nursing home industry” but a CMS spokesperson confirmed the family retains an ownership stake in more than 50 homes.

In New Jersey a home once owned by Skyline but now owned by a separate company run by Joseph Schwartz’s son, Louis, is facing accusations of neglect.

Louis Schwartz did not respond to requests for comment about the facility, which is called Andover Subacute Care II.

In January, the facility was cited by the state for endangering residents after a woman with dementia wandered out of a locked unit through two sets of broken automatic doors. She was found in the parking lot at 4:30 a.m., sitting on ice-covered ground without a coat, socks or shoes. It was four degrees below zero, according to a police report, and she suffered from “severe frostbite.”

Her daughter, Terri Thompson, said when she reached her mother’s hospital bed that morning, she could barely hear a heartbeat. Her mother’s nails, which she used to love to paint, have fallen off, as has much of the skin on her arms and legs from the frostbite.

“I never, ever imagined I would be betrayed like this,” Thompson said. “They didn’t even look for her. Someone else saw a woman lying in the snow, and it was my mom.”