A group of federal lawmakers has accused Genesis HealthCare’s investors of “hollowing out” the once-massive nursing home chain and demanded an accounting of its executives’ roles, compensation and business strategies ahead of a potential bankruptcy sale to insiders.
US Sens. Elizabeth Warren (D-MA), Richard Blumenthal (D-CT) and Peter Welch (D-VT), and Rep. Maggie Goodlander (D-NH) sent a letter to the company’s restructuring officers and Joel Landau, managing partner of Genesis’ private equity owner, on Tuesday. It seeks responses to 23 questions about company and investor operations and the organization’s thinking on bankruptcy over a sale.
The lawmakers allege the bankruptcy process is jeopardizing care at hundreds of Genesis-owned facilities, “where conditions have already been deteriorating over the past few years.”
“This precarious situation appears to have been the result of years of private equity looting of Genesis, including by JER Partners and, most recently, by Mr. Landau’s ReGen Healthcare,” the letter states.
“We are further concerned that Genesis and Mr. Landau may be using the bankruptcy system to wipe away Genesis’s debts and claims to victims by selling the company at a discount to insiders,” it added. “Patients and family members hurt by Genesis, together with taxpayers who have paid hundreds of millions of dollars for patient care at Genesis through the Medicaid and Medicare programs and our constituents, deserve answers regarding the cause of this bankruptcy, whether Genesis plans to repay the debts it owes, and whether Genesis is attempting to abuse our bankruptcy system.”
Genesis operates 175 nursing homes in 18 states, according to its July bankruptcy documents. Less than 10 years ago, it had more than 500 facilities and was the largest nursing home operator in the US.
Runaway legal spending
Genesis attorneys said early in the bankruptcy process that the chain was spending $8 million a month to settle and defend tort claims, and Warren and colleagues noted the company owes $259 million in outstanding litigation costs.
But the letter notes another 165 claims are still pending and attorneys have estimated potential victims may be owed $344 million more.
The letter was issued Tuesday, a day before the latest major hearing in the bankruptcy case. At that hearing, US Bankruptcy Judge Stacey Jernigan agreed to stop wrongful death lawsuits from proceeding against Genesis employees and shareholders over the objections of 14 people who have ongoing lawsuits against the company.
Attorneys for those plaintiffs said they should be able to bring claims against investors and shareholders who contributed to the Genesis collapse, Reuters reported. But Jernigan denied their motion, arguing that further proceedings during the bankruptcy threaten patients and operations at the 175 nursing homes still being operated.
“Genesis appears to be attempting to use the bankruptcy system to escape its liabilities, leaving businesses and victims in the lurch,” Warren and colleagues wrote. “In addition, the same insiders that are attempting to repurchase Genesis at a discount have snuck provisions into the sale proposal that would release claims against them, allowing them to not only leave monetary claims behind but also escape personal liabilities.”
Neither a Genesis spokesperson nor Landau immediately responded Thursday to McKnight’s Long-Term News’ requests for comment.
Lawmakers want leadership, financing info
The letter demands information on Genesis’ leadership and stakeholder structure; the leadership and ownership of all of the entities’ parent companies; and a description of the stalking horse bidder’s ownership structure.
It also seeks to understand more about the parties that have played a role in Genesis financing and operations in recent years, including ReGen, Pinta Capital and Perigrove.
In addition, the lawmakers posed 16 questions about the bankruptcy and proposed “stalking horse” sale to current investor ReGen, including:
- Why the company did not seek to reorganize through a Chapter 11 plan;
- Why the company decided to file its bankruptcy case in the Northern District of Texas, including any internal analysis comparing venues or expected treatment of third-party releases and insider transactions in Texas; and
- Whether Genesis conducted an enterprise valuation before deciding to sell.
The lawmakers said the information is due by Oct. 21, which would “enable us to better carry out our responsibilities to pursue legislation to improve the healthcare system in the interests of our constituents and protect the bankruptcy process from misuse.”
This is a developing story. Please check back for updates.
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