Resident-care issues scuttle sale of Iowa nursing homes to East Coast developer

By: - June 4, 2022 9:00 am

The planned sale of an Iowa nursing home chain to an East Coast developer has been scuttled partly due to quality-of-care issues. (Photo by Getty Images)

The planned sale of a troubled Iowa nursing home chain to an East Coast developer has been scuttled partly due to quality-of-care issues.

QHC Facilities, which owns eight skilled-nursing facilities and two assisted-living centers in Iowa, filed for bankruptcy in late December. The previous owner of the company, Jerry Voyna, died last year. His wife, Nancy, took over the company and filed for bankruptcy soon after. She died in January, leaving the company to her son, who began pursuing a sale of the company and all of its assets.

In early March, a federal bankruptcy court judge approved the sale of QHC to Cedar Health Group, a holding company based in Lakewood, N.J. Cedar is part of a network of companies run by real estate developer Mark Tress, who specializes in acquiring distressed properties.

The sale, however, ran aground when Cedar Health began raising questions about quality-of-care issues that could impact the licenses for QHC’s care facilities.

In newly filed court records, Cedar Health says it inquired about the possibility of purchasing some or all of the assets of QHC, but backed out when it learned the sale would be conducted by auction.

QHC claims that “almost literally within one or two hours” of the March 4 auction, a QHC broker urged Cedar Health to bid on the chain, even though Cedar Health had not completed all of the pre-bid requirements. Cedar Health says it agreed to participate in the auction, which resulted in the only competing bidder, Blue Diamond, objecting due to the pre-bidding requirements not being met.

According to Cedar Health, QHC waived the pre-bidding requirements for Cedar Health because it was “keen on having more than one bidder.” Cedar Health then emerged as the high bidder at $12.1 million, and it quickly turned over a deposit of $605,000.

By March 22, however, the sale appeared to be at risk. Court records show that legal counsel for Cedar Health wrote to QHC’s representatives, explaining that Cedar Health was trying to “determine whether any of the facilities are in imminent danger of decertification” due to quality-of-care issues. The attorney also noted that two of the QHC homes had been designated Special Focus Facilities by the federal government, indicating a long, uncorrected pattern of serious violations.

In addition, the legal counsel said, Cedar Health had yet to determine whether quality-of-care citations issued by regulators were going to “endanger the licensure of the facilities.”

QHC’s representatives wrote back, pointing out the time to perform that sort of due diligence was before the auction, not after, and that qualified bidders had agreed that if they submitted the winning bid, they would take over management of the nursing home chain no later than March 18.

“We are now past that deadline however with no signed management agreement or firm commitment,” QHC’s lawyer told Cedar Health. “We would like to see this transaction go forward still and want to work with you … However, we have the health, safety, and welfare of residents and patients to think about. As such, if signed management agreements and a commitment to wire $500,000 today is not received by noon CST today, we have no choice but to file an emergency motion with the court to request a hearing on this matter, which will include approval to move forward with the backup bidder.”

Cedar Health then offered QHC $250,000 and asked for more time so that it could gather information on the regulatory issues. QHC refused, and then went to court to secure an emergency order allowing the chain to be sold to Blue Diamond, the backup bidder.

The court agreed to QHC’s request, and on March 24, Judge Anita L. Shodeen ruled that due to “the current financial instability” of the QHC nursing homes and the lack of a completed management agreement, she was authorizing the sale of the chain to Blue Diamond.

The “unknown status of the transaction” with Cedar Health, she ruled, “endangers the health, safety and welfare of the residents” of the QHC facilities. Cedar Health is now seeking the return of its deposit, and QHC is resisting.

Still to be determined is the fate of a wrongful death claim made by the family of Gladys Van Sickle, who died after allegedly sustaining broken bones in a fall at QHC’s Winterset North facility in Madison County. A trial in that case is scheduled for October 2023, but the bankruptcy court may first have to deal with the status of QHC’s insurance once the sale to Blue Diamond is completed.

QHC’s 10 Iowa care facilities have a combined capacity of almost 750 residents. The facilities are: QHC Mitchellville, QHC Winterset North, QHC Winterset South, QHC Madison Square, QHC Fort Dodge Villa, QHC Crestridge, QHC Crestview Acres in Marion, QHC Humboldt North, QHC Humboldt South and QHC Villa Cottages of Fort Dodge.

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Clark Kauffman
Clark Kauffman

Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing. His 2004 series on prosecutorial misconduct in Iowa was named a finalist for the Pulitzer Prize for Investigative Reporting. From October 2018 through November 2019, Kauffman was an assistant ombudsman for the Iowa Office of Ombudsman, an agency that investigates citizens’ complaints of wrongdoing within state and local government agencies.